Incentives for Doing Business in India

There are various incentives available to businesses depending on the economic activity, industry, location, and size of the firm.

Contributing Advisor

Koushan Das

Manager, Business Intelligence

India offers tax relief at both the central and state level. Additional incentives are available to investors in specific sectors, while India’s special economic zones (SEZs) offer their own comprehensive tax relief. However, not all tax benefits offered are mutually inclusive.

Corporate tax incentives for eligible companies

The corporate income tax rate for new companies is 22 percent rate and for new domestic manufacturing is 15 percent.

The concessional tax regime (22 percent) for domestic enterprises is applicable only if they do not avail of specific tax incentives or deductions. (The effective tax rate for these domestic companies is around 25.17 percent inclusive of surcharge and cess.)

Those companies opting for the concessional corporate tax rate do not have to pay minimum alternate tax. India’s current effective tax rate brings it at par, on average, with leading Asian investment destinations and manufacturing hubs like China, Vietnam, Malaysia, Singapore, and South Korea.

Tax rates for foreign companies

A foreign company is liable to pay income tax at 35 percent of the average taxable Income.

Tax rate for partnership firms, including LLP or local authorities

A partnership firm, LLP, or a local authority must pay income tax at 30 percent of average taxable Income.

Tax incentive for capital expenditure on specified businesses

100 percent deduction of capital expenditure is allowed in the year when the commercial operations begin for the following specified businesses, including:

• Setting up and operating cold chain facilities;
• Setting up and operating warehousing facilities for storage of agricultural produce;
• Setting up and operating an inland container depot, freight station; or
• Warehousing facility for storage of sugar, beekeeping, and honey and beeswax production.

Incentives for Special Economic Zones (SEZs)

SEZs offer several incentives to foreign investors, such as ease of doing business, tax benefits, and favorable policies, which make it easier for them to invest in India. They include:

• Tax benefits: SEZ developers and units qualify for tax exemptions on their profits and investments for a specific period, varying with the type of SEZ and the approval date. For the first five years, SEZ developers are entitled to a 100 percent income tax exemption on their profits, followed by 50 percent for the next five years. Likewise, SEZ units can avail themselves of a 100 percent income tax exemption on their profits for the first five years, a 50 percent exemption for the following five years, and a 50 percent exemption on reinvested profits for the next five years.
• Customs duty exemption: SEZ units can import goods duty-free for their authorized operations and source goods from the Domestic Tariff Area without paying any duty.
• Simplified procedures: SEZ units enjoy streamlined procedures for approvals, registrations, and certifications. They can benefit from a single-window clearance system that caters to all their needs.
• Infrastructure support: SEZ developers can construct and maintain infrastructure facilities like roads, power, water, and communication networks within the SEZ, with government aid. SEZ units have access to top-notch infrastructure facilities within the zone.
• Flexibility in employment: SEZ units are allowed to hire both domestic and foreign workers without any restrictions. They can also provide better compensation packages to their employees.
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Tax incentives in different Indian states

Foreign companies choosing where to set up in any of India’s states should note that each region has its own set of policies and incentive schemes. The applicability of incentives usually varies based on:

• The state’s location;
• The products that will be manufactured;
• The scale of investment; and
• The creation of jobs.

Social security agreements

India has concluded various Social Security Agreements (SSAs) to ease the social security obligations on cross-border/international workers. Incentives such as detachment, exportability of pension, totalization of benefits, and withdrawal of social security benefits are available.

India has signed SSA with 20 countries, including Belgium, Germany, Switzerland, Denmark, Norway, Luxembourg, France, South Korea, Netherlands, and Hungary to name a few. 

SSAs offer three types of benefits for international workers and NRIs, namely: detachment, exportability, and totalization. 

• Detachment eliminates the need for workers to make social security contributions in the host country for a specific period (as stipulated by each SSA) if they continue to contribute to their home country's social security system. To avail of this benefit, the employee must present a 'Certificate of Coverage' (CoC) from their home social security authorities to the host country's authorities. 
• Exportability allows workers to receive social security benefits in either their home country or their host country without any difference in the value of the benefits. This enables workers to export their benefits from their host country to their home country or to beneficiaries after retirement or when their employment there ends. 
• Totalization takes into account the duration of an employee's work in a foreign country when determining their eligibility for benefits. The payment amount is prorated based on the length of time the employee worked in the foreign country. 

Make-in-India initiative

This specific initiative aimed to build a strong manufacturing ecosystem, generate employment, and elevate India’s position in the global economy by focusing on design, innovation, and production across diverse sectors.

Key policies and initiatives under the Make in India directive

Production Linked Incentive (PLI) schemes

The PLI schemes were introduced to boost manufacturing across 14 key sectors with an allocation of INR 1.97 trillion (approximately US$23.3 billion). In 2025, actual investments totaling INR 1.61 trillion have been realized. These investments have already led to a remarkable boost in production and sales, amounting to INR 14 trillion and directly and indirectly generating about 1.1 million jobs. In FY 2024-25, the country's exports stood at US$824.9 billion.

The PLI schemes support multiple sectors, including:

• Electronics manufacturing
• Pharmaceuticals and medical devices
• Automobiles and auto components
• Specialty steel
• Telecom and networking products
• IT hardware
• White goods (AC and LED)
• Food processing
• Textiles (man-made fiber and technical textiles)
• Renewable energy (solar PV modules and advanced chemistry cell batteries)
• Drones and drone components

Sector-specific achievements

• Electronics manufacturing: India’s mobile phone exports have soared to a new high, crossing the INR 2 trillion mark in the FY 2024-25, according to the India Cellular and Electronics Association (ICEA). India has become a leading exporter, with production of smartphones at 325 to 330 million units annually. As of February 2025, LSEM has led to a cumulative investment of INR 109.05 billion, with additional direct employment generation of 139,670. India is now the world’s 2nd largest mobile manufacturing country.
• Pharmaceuticals and medical devices: India is now the third-largest pharmaceutical producer by volume, exporting 50 percent of its production. PLI schemes have enabled domestic production of essential bulk drugs like Penicillin G and advanced medical devices such as CT scanners and MRI machines, reducing import dependency.
• Automotive industry: With an investment allocation of INR 207.5 billion (US$3 billion), the scheme has attracted INR 676.90 billion (US$8.15 billion), exceeding expectations. Over 85 companies have been approved, driving high-tech automotive production.
• Renewable energy (Solar PV): A budget of INR 195 billion (US$2.31 billion) supports the goal of achieving 60 GW of integrated solar module production by 2025, enhancing energy self-sufficiency and employment opportunities.
• Telecom and networking: India has substituted 60 percnet of telecom imports and has become a global supplier of 4G and 5G equipment. Increased manufacturing by global technology firms has strengthened India's role in global telecom infrastructure.
• Drones and drone components: India's drone industry saw a seven-fold revenue increase, led by MSMEs and start-ups. The PLI scheme continues to foster investment, job creation, and advancements in drone technology.

PM GatiShakti infrastructure plan

Launched in 2021, PM GatiShakti is a national initiative designed to integrate key infrastructure sectors such as railways, roads, and airports. This program enhances logistics efficiency, reduces transportation costs, and promotes overall economic growth by connecting different networks under a unified planning framework.

Semiconductor ecosystem development

India aims to establish a self-reliant semiconductor industry through the ‘Semicon India’ program, with an investment of INR 760 billion (approximately US$8.99 billion).

As of May 2025, six semiconductor units were approved to receive central and state government subsidies under the Semicon Program:

• Joint venture of HCL and Foxconn;
• Micron Technology, Tata Electronics Private Limited (TEPL) in partnership with Taiwan’s PSMC;
• Tata Semiconductor Assembly and Test Pvt Ltd (TSAT);
• CG Power in partnership with Japan’s Renesas Electronics Corporation and Thailand’s Stars Microelectronics; and,
• Kaynes Semicon.

India Semiconductor Mission (ISM): Approved and Pipeline Projects

National Logistics Policy (NLP)

Launched in September 2022, the National Logistics Policy (NLP) aims to enhance India's logistics infrastructure and strengthen its position as a global supply chain hub. The policy focuses on reducing logistics costs, improving efficiency in road, rail, air, and water transport, and integrating digital technologies for better tracking, customs management, and compliance. 

India's logistics sector is projected to reach US$380 billion in 2025, growing at a consistent annual rate of 10 to 12 percent. Currently, the sector accounts for 13 to 14 percent of the country’s GDP—significantly higher than the global average—primarily due to elevated infrastructure-related costs. With initiatives like Bharatmala, Sagarmala, Udan, and Dedicated Freight Corridors, logistics costs have already decreased to 8.35 percent of GDP, with an NLP target of further reducing this to around 5 percent. These measures are also aimed at attracting multinational companies seeking alternatives under the “China Plus One” strategy, enhancing India’s global trade position and competitiveness.

Key initiatives such as Bharatmala, Sagarmala, Udan, and Dedicated Freight Corridors have already lowered logistics costs to 8.35 percent of GDP, with a long-term goal of reducing this further to around 5 percent. These improvements aim to attract multinational companies looking for alternatives under the “China Plus One” strategy, bolstering India’s global trade competitiveness.

Industrialization and urbanization

The National Industrial Corridor Development Programme is India’s largest infrastructure initiative, designed to develop “Smart Cities” and advanced industrial hubs to drive manufacturing growth and planned urbanization. Recently, 12 projects with a combined investment of INR 286.02 billion (US$3.38 billion) have been approved, reinforcing India’s commitment to industrial expansion.

Special Economic Zones (SEZs) and Export-Oriented Units (EOUs)

SEzs are geographically demarcated areas within a country that have economic laws that are different from the rest of the country. These zones offer various incentives to attract businesses, including tax breaks, simplified regulations, and improved infrastructure. Defined in the Foreign Trade Policy (FTP), EOUs commit to exporting their entire production, excluding permissible sales in the Domestic Tariff Area (DTA). Their activities encompass manufacturing, repair, service rendering, software development, and agriculture. EOUs enjoy various benefits, including customs and excise duty exemptions on imported and locally procured goods, exemptions on exports, and access to duty-free raw materials. They also benefit from streamlined regulations, world-class infrastructure, and the ability to retain 100 percent of foreign exchange earnings, enhancing financial flexibility. SEZs are concentrated in certain states, such as Maharashtra, Gujarat, and Tamil Nadu.

Startup India

Launched in January 2016, Startup India fosters entrepreneurship, contributing to a thriving startup ecosystem. By December 2024, India ranked third globally in the number of startups, with over 156,041 startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) creating more than 1.5 million jobs. The initiative offers tax benefits, including a 100 percent deduction on profits for three consecutive years within a startup’s first decade (under Section 80-IAC of the Income Tax Act, 1961). Additionally, non-resident investments up to INR 100 million in startups are now tax-exempt. In a major boost, the 2024 Union Budget abolished angel tax for all investor categories, effective from FY 2025-26.

Tax reforms

The implementation of the GST in July 2017 unified India's indirect tax system across all states and union territories, creating a seamless national market. This reform has simplified tax compliance, reduced cascading taxes, and enhanced the ease of doing business.

Unified Payments Interface (UPI)

India has emerged as a global leader in digital payments through UPI, which processes nearly 46 percent of the world's real-time transactions. 

In FY 2024-25, UPI transactions totaled INR 260 trillion, compared to INR 200 trillion in FY 2023-24, representing a 30 percent growth. The number of UPI transactions reached a new high of 18.3 billion in March 2025, with the value touching a new high of INR 24.77 trillion.

Ease of doing business reforms

India has introduced several regulatory improvements to enhance the Ease of Doing Business (EoDB). These include simplifying compliance processes such as application filings, renewals, inspections, and record submissions to reduce bureaucratic delays. Over 3,400 minor legal provisions have been decriminalized, and redundant laws have been repealed or amended to create a more business-friendly environment.

Digitization has also played a key role, with online platforms replacing manual paperwork, increasing transparency and efficiency. The introduction of the Permanent Account Number (PAN) as a universal business identifier has streamlined regulatory approvals across government departments. As a result, India’s global Ease of Doing Business ranking improved from 142 in 2014 to 63 in 2020, making the country more attractive for investments and entrepreneurship.

Impact on foreign investment and ease of doing business

According to a dossier released by India’s central government, “Make in India” has attracted unprecedented levels of foreign direct investment (FDI) by simplifying FDI regulations and improving the business environment.

From April 2000 to March 2025, India has received US$728.88 billion in FDI. In FY 2024-25, FDI inflow totaled US$50.01 billion, further building India’s position as an attractive global investment destination.

Incentive applicable for FY 2025-26

• Several schemes have been introduced to promote manufacturing in India, such as Manufacture and Other Operations in Customs Warehouse (MOOWR) and PLIs for several sectors. Further, the Government also introduced the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to promote exports of goods from India;
• Several customs duty-related changes have been introduced to motivate domestic manufacturers;
• Faceless customs have been fully established, thereby enhancing the ease of doing business; 
• Micro, Small, and Medium Enterprises (MSMEs) can continue to avail of their non-tax benefits for a period of one to three years after they have achieved upward growth in investment and/or turnover, which will classify them in a higher category;
• Concessional rate of 15 percent (plus surcharge and cess) on new manufacturing co-operative societies that meet the necessary requirements, starting from April 1, 2023; and
• Startups in India can now carry forward and set off their losses incurred during the first ten years of incorporation, regardless of changes in shareholding, as long as all shareholders remain invested during the relevant period. The government has proposed to extend the previous time limit of seven years to ten years.