Business

Why Set Up a Manufacturing Plant in India

1) Effective schemes by the government- Various State governments like Gujarat, Tamil nadu, and Maharashtra provide subsidies & rebates for setting up the manufacturing plant in the respective states. There are electricity rebates, taxation rebates provided to plant setup in these states.

2) Huge demand of products & services in India- India is home to 140 crore people. Due to its huge population, the demand of various products & services are huge in India. Foreign Companies can take advantage of the huge demand of their products & services after doing thorough market research of their products & service4s in India.

3) Lower Tax rates – In general terms, China has huge manufacturing facilities. However, as compared to India, India has lower tax rates, which is only 22% applicable on Corporations. It also acts as an added advantage for foreign Companies that are looking to set up their plant in foreign Countries. For new manufacturing companies, 15% concessional rate (under Section 115BAB) may apply, subject to conditions. Foreign companies are taxed at 40% (plus surcharge & cess).

4) Skilled workforce force at lower costs- India has huge skilled workforce atlower costs as compared to developed countries. Foreign Companies can choose to setup their plants in India as talented pools of workforce are available at lower costs.

A Manufacturing Company has various options available to setup in India:

1) Company- A Company is one of the most structured & preferred forms of entity to set up in India. Due to its structured & legal framework, not only Indian Companies but also foreigners choose to setup up Companies in India.

 Wholly Owned Subsidiary (WOS) - For Foreign Companies, WOS is one of the most preferred forms of entity in India wherein a foreign Company shall hold 100% of the Indian Company to maintain the ownership in the Indian Company. Further, foreign citizens can also be directors in the company to manage the affairs of the Company with at least one Indian resident director. 100% FDI is allowed under the automatic route in most sectors, but some sectors have caps or require government approval (e.g., defense, insurance, telecom).

 Joint Ventures (JV) in India- Foreign Companies can also enter in JVs with Indian Companies to understand the Indian market & culture. 

2) Limited Liability Partnership (LLP)- Limited Liability Partnerships is also a legal structure opted wherein Partners enter into an agreement with Capital Contribution in the firm. Liabilities of the partners is limited to their Capital Contribution in the firm. Foreign investment (FDI) in LLPs is permitted only under the automatic route in sectors where 100% FDI is allowed without performance-linked conditions.

3) Partnership firm- Partnership firm can also be formed. Though it is not a structured form of entity if it is unregistered. An unregistered partnership firm cannot enforce contracts in court.

However, due to its lower compliances, partnership firms are also opted to be formed in India. 

4) Sole Proprietorship- Sole proprietorships can be opted where there is a single owner. Though the liability of the proprietor is unlimited to its personal assets. It is less preferred wherein large investments are made by the owners.

Post setting up a legal entity in India, entity is liable to obtain following registration:

1) Goods & service tax (GST) registration- Post setting up the entities out of the above options, GST registration is required to be obtained to claim the credit of taxes paid on products & services which is called Input tax credit (ITC). Though the turnover limit to obtain the registration is INR 20 Lakhs for services & INR 40 lakhs for products, it is advisable to obtain GST registration to claim the benefit of ITC on products & services which be set off against output liability once sales gets started.

2) Bureau of Indian Standards (BIS) certification- Mandatory only for specified goods under the Bureau of Indian Standards Act, 2016. This is a certification required to be taken to conform to the health standards adopted by the entities, to provide quality assurance & protect consumers from hazardous products. It is applicable to certain specific products like iron & steel products, automobiles, plastic & electronics etc.

3) Trademark & patent registration- Trademark & patent registrations are required to protect the Intellectual Property rights. It is required to protect the name & logos of the Companies. It is required to protect the brand identity of the Company so as to create uniqueness in the market.

4) Fire Safety Certificate- In manufacturing plants, fire safety licences are one of the most important certificate required. Make sure to obtain the certificate from relevant authorities.

5) Factory License- For every manufacturing plant, factory licence is required. It provides the licence to factory to ensure that its operations run smoothly.

6) Shop & Establishment registration- Shop & Establishment registration is required for all the shops, services providers & manufacturing plants. This is governed by the state laws.

7) Industry-specific licences- There are other industry-specific licences that may be required by the manufacturing plants like for automatives, electronics etc.

Conclusion:

Setting up a manufacturing plant can involve a lot of challenges. It can be a time-consuming & cumbersome process to obtain the licences & approvals. However, it can be done with the right planning & right set of professionals who can help in making this path smoother for you. Right from selecting the best legal structure of entity to obtaining all tax registrations & other approvals, each & every part plays an important role in smoother operations & success of the Company. At VDC, Chartered Accountants, we can help in provide the right legal advice & help the Indian & Foreign Companies in obtaining all approvals & certification without any hassle. Our team of experts provides end-to-end support from company formation to ongoing tax and legal advisory. For more information, connect with us at vidhu@vidhuduggalandco.com