corporate law
A 'factory' is defined under relevant legal provisions as any premises, including its surrounding areas, that meets one of the following criteria:
A factory license becomes necessary when the workforce reaches the thresholds of either ten or twenty employees, depending on these conditions.
The Ministry of Industry [Department of Industrial Development] has issued a notification stating that small-scale industries—whose investment in plant and machinery does not exceed three crore rupees—are exempt from factory licensing for manufacturing items listed under Schedule III. Examples of items that do not require a factory license include:
Per the notification dated 4(1)/92 – SSI from the Ministry of Industry [Department of Industrial Development], any item designated as compulsorily licensable and reserved solely for small-scale sector production does not require a license, regardless of whether the workforce exceeds fifty or one hundred employees, and whether power is utilized or not. Non-compliance can lead to fines up to ₹5 lakh (up from ₹2 lakh before 2023) as per the Factories (Amendment) Act, 2023.
National Factory License Portal: Launched in 2024, this platform facilitates online applications and reduces processing times to 7 to 10 days.
Auto-Approval for MSMEs: Micro and small enterprises with up to fifty workers can obtain licenses instantly upon submission of self-certified safety audits.
2024 MoEFCC Notification: MSMEs operating in non-hazardous sectors (such as textiles and food processing) and employing no more than thirty workers with an annual turnover of up to ₹10 crore are exempt from the licensing requirement.
Ease of Doing Business (2025): States such as Gujarat and Tamil Nadu have eliminated licensing for MSMEs in industrial clusters that share safety infrastructure.
As per established notifications, a small-scale industry is defined as an industrial entity with an investment in fixed assets (including plant and machinery)—whether owned, leased, or obtained through hire purchase—that does not exceed three crore rupees. An ancillary industrial undertaking is categorized as one that manufactures or produces components, sub-assemblies, or tooling for intermediate goods, or delivers services while providing no more than fifty percent of its production to one or more other industrial undertakings, all maintaining a fixed asset investment of no more than three crore rupees.
| Category | Manufacturing Investment | Turnover |
|---|---|---|
| Micro | ≤ ₹1 crore | ≤ ₹5 crore |
| Small | ≤ ₹10 crore | ≤ ₹50 crore |
| Medium | ≤ ₹50 crore | ≤ ₹250 crore |