A US company that wants to manufacture in India faces a different set of questions from a software company. Incentives such as production-linked incentive schemes reward sales and investment above a base year in selected sectors, special economic zones offer duty-free imports and export-oriented treatment, and several states add land, power or stamp duty concessions. Each carries conditions and deadlines, and income-tax holidays that once attracted investors have largely lapsed. Beyond incentives, the work is practical: customs duty and goods and services tax on machinery, product standards and quality control orders that restrict imports of components, land and power, and a skilled workforce. This guide is a checklist for those questions. We state scheme features from public descriptions; the terms change often, so confirm them with the administering ministry before relying on any.
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Key facts
| PLI schemes | Cash incentives on incremental sales of eligible products in listed sectors; thresholds, application windows and caps |
|---|---|
| SEZ and export units | Duty-free import of inputs and capital goods for export production; GST zero-rated supplies; conditions on net foreign exchange earnings |
| Income tax | Older tax holidays have largely lapsed; confirm the current concessional regimes and sunset dates |
| Customs and GST | Duty on machinery and components; some capital goods schemes; input tax credit rules |
| Standards | BIS certification and quality control orders can restrict imported components |
| Land and power | State industrial agencies; stamp duty on leases; power tariffs and reliability |
| Foreign exchange | Manufacturing is generally under the Automatic Route; some sectors have caps |
| Supply chain | Local sourcing conditions in some schemes and in single-brand retail |
Why manufacturers need a separate plan
A services company has few assets and can move quickly. A manufacturer commits capital for years, needs land and power, and often depends on government schemes whose rules change. The legal entity is usually the same, a private limited company, and the foreign investment route is usually the Automatic Route for manufacturing, but the commercial planning is quite different. Start by listing the products, the volume plan, the share of local sourcing, the export plan and the funding timetable, because each scheme asks for them.
Production-linked incentives
Production-linked incentive schemes pay a percentage of incremental sales of products made in India over a base year, for a limited period, to companies in listed sectors, which have included electronics, pharmaceuticals, medical devices, auto components, specialty steel, solar modules and others. Applicants must meet minimum investment and sales thresholds and file within an application window. Payments depend on verification of sales and are subject to caps and conditions on domestic value addition. Because windows close and schemes are revised, a US company should check whether its product is on the current eligibility list and whether the scheme is still open. A scheme should be treated as a possible upside, not as the reason for the investment.
Special economic zones and export units
A special economic zone is a designated area treated as foreign territory for trade purposes. Units in a zone can import capital goods and inputs without customs duty and can supply exports as zero-rated for goods and services tax, subject to conditions such as achieving positive net foreign exchange earnings. Income-tax holidays for new units in zones ended for units that began operations after March 2020, so the case for a zone now rests on indirect tax and logistics, not on a tax holiday. Supplies from a zone unit to the Indian domestic market are charged duty and have restrictions. Export-oriented units outside zones have similar benefits. Check the current framework, including any replacement scheme for zones, before you commit.
Customs duty, GST and machinery
- Capital goods carry customs duty that depends on the tariff line and any concession, and goods and services tax on top, for which input tax credit is available if the conditions are met.
- Some schemes allow concessional duty on capital goods against an export obligation; the obligation has to be met within a stated period.
- Imports of components can face anti-dumping duties and quality control orders, so check each part number.
- Classification disputes are common, so ask a customs adviser to confirm the tariff line and obtain an advance ruling where the amount justifies it.
- Plan the cash flow: duty and tax are paid at import, and credit is received later.
Standards and quality control orders
India applies product standards through the Bureau of Indian Standards, and quality control orders make certification compulsory for listed products and, in some cases, for the inputs used to make them. A manufacturer that imports components covered by an order must either obtain certification for the foreign supplier or source locally, and the restriction can change the economics of a plant. Check the list for each component and each finished product and allow time for certification, which can take months. See the compliance calendar for the annual rhythm once operations begin.
Land, power and approvals
Industrial land is allotted by state industrial development agencies or bought privately, with stamp duty on the transaction and conditions on use and timelines for construction. Approvals typically include environmental consent, factory licence, fire and building approvals, power connection and, for some sectors, a sector regulator. Timelines vary by state, and single-window systems exist to speed them up. Power tariffs and reliability differ by state and by category of consumer. Use a local adviser who has dealt with the agency, and keep the first plant modest until approvals are in hand. See choosing a state and city.
Tax rate choices and transfer pricing
Domestic companies can choose between the standard regime with deductions and a lower-rate regime without them, and a concessional regime for new manufacturing companies has existed with a sunset date. Which is better depends on the plan, and the choice is made by filing, so model it before the first return. Transfer pricing matters more for a manufacturer, because of contract manufacturing for the US parent, purchases of components from the group and royalties for technology. See transfer pricing.
A project checklist
- Confirm the sector route and any caps.
- List products and check PLI and other scheme eligibility and windows.
- Decide the site and compare state concessions with talent and logistics.
- Classify machinery and components; check duties and quality control orders.
- Model the tax regime choice, the incentive and the transfer pricing.
- Plan approvals, power and water, and a realistic construction timeline.
- Hire the plant leader and key engineers before the building is complete.
- Set up an Indian subsidiary early so that it can sign contracts and hold licences. See the timeline guide.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Internal Revenue Service (US), Bureau of Industry and Security (US) and the Ministry of External Affairs (India).
Frequently asked questions
Does India offer incentives for US manufacturers?
Yes, in the form of production-linked incentives for listed sectors, zone and export unit benefits, and state concessions, each with conditions.
What is a PLI scheme?
A scheme that pays a percentage of incremental sales of eligible products over a base year, for a limited period, subject to investment and sales thresholds.
Do special economic zones still have a tax holiday?
Income-tax holidays ended for units that began operations after March 2020. Zone benefits now rest mainly on indirect tax and logistics.
Is manufacturing open to 100% foreign ownership?
Generally yes under the Automatic Route, with exceptions in a few sectors. Confirm for your product.
What are quality control orders?
Rules that make BIS certification compulsory for listed products and sometimes their inputs, which can restrict imports of components.
How is machinery taxed on import?
Customs duty depends on the tariff line and any concession, and goods and services tax applies with input credit if conditions are met.
Should I choose a location only for incentives?
No. Talent, logistics, power and approvals matter more, and schemes change.
Does the US parent need to do anything for a manufacturing subsidiary?
The usual Form 5471 and credit work applies, and transfer pricing needs care. See the US tax guide.
When should the subsidiary be set up?
Early, so that it can sign contracts, hold licences and apply for schemes.
Related guides
Where Should a US Company Set Up in India? Comparing Bengaluru, Hyderabad, Pune, Chennai, Delhi NCR, Mumbai and GIFT City on Talent, Stamp Duty, Labour Rules and Incentives
How to choose the state and city for the registered office and the team: a decision framework, a comparison table of major hubs by function, how state law changes stamp duty, professional tax and shops rules, what GIFT City offers, and the order of questions that matter most.
Read the guide →Transfer pricing for US groups
Form 3CEB, benchmarking and intercompany agreements.
Read the guide →How the US Taxes Profits of an Indian Subsidiary: Net CFC Tested Income, Subpart F, the Participation Deduction, the High-Tax Exclusion and Foreign Tax Credits
The US side of an Indian subsidiary for a US C corporation or pass-through owner: how profits are taxed when earned or when distributed, what changed after the July 2025 tax act, the role of Indian tax as a credit, check-the-box choices and the forms (5471, 926, 1118, 8992 and 8993).
Read the guide →Compliance calendar
Annual and monthly filings for an Indian subsidiary.
Read the guide →Sources
Last updated 2 November 2026. General information only, not legal or tax advice. Indian and US rules change often; confirm current requirements before acting.