Karnataka Industrial Policy: IT Parks, Startup Benefits & Foreign Company Incentives

Karnataka's Industrial Policy 2025-30: India's Most Ambitious State-Level Framework

On February 8, 2025, Karnataka launched its Industrial Policy 2025-30, replacing the previous 2020-25 framework with significantly expanded scope and ambition. The policy targets INR 7.5 trillion (~USD 83.6 billion) in investments, 2 million new jobs by 2029, and a 12% annual manufacturing sector growth rate — numbers that place it among the most aggressive state-level industrial policies in India's history.

For foreign companies evaluating India entry or expansion, Karnataka's policy is particularly relevant because it explicitly addresses three high-value segments: IT and Global Capability Centers (GCCs), startups and deep tech, and advanced manufacturing. The incentive structure is tiered by geography (zones), investment scale (MSME, large, mega, ultra-mega), and sector, allowing foreign companies to optimise their setup for maximum benefit.

This guide covers every dimension of the policy relevant to foreign companies, with specific incentive amounts, eligibility criteria, and practical setup considerations current as of March 2026.

Why Karnataka Dominates India's Technology Landscape

Before diving into the policy, the context matters. Karnataka — and specifically Bengaluru — is not just India's technology capital; it is a global technology production centre.

This existing ecosystem creates network effects that no other Indian state can currently match: talent density, vendor ecosystems, international connectivity (Bengaluru has direct flights to 30+ international destinations), and institutional knowledge of serving global technology companies.

Capital Subsidies and Production-Linked Incentives

The 2025-30 policy offers flexibility to choose between capital subsidies and production-linked incentives (PLI). This choice is significant for foreign companies deciding between capital-intensive manufacturing setups and asset-light service operations.

Capital Subsidy Structure

Production-Linked Incentive (PLI)

Alternatively, companies can opt for a PLI of up to 2.5% (Zone 1) to 1.0% (Zone 3) of net sales turnover for seven years. This option is particularly attractive for companies that expect rapid revenue growth but have lower upfront capital expenditure.

Booster Incentives

Additional incentives apply for:

• Job creation: Higher incentives for units creating employment above specified thresholds
• Female workforce participation: Enhanced subsidies for units with above-average female employment ratios
• Co-location of R&D and manufacturing: Companies that establish both R&D and manufacturing operations in Karnataka receive additional benefits

Stamp Duty and Land Benefits

Karnataka offers significant concessions on stamp duty and land costs, which represent a substantial portion of setup expenses for manufacturing and office operations:

Stamp Duty Exemption

• Zone 1 (Backward): 100% stamp duty exemption on industrial land transactions
• Zone 2 (Developing): 100% stamp duty exemption
• Zone 3 (Developed): No stamp duty assistance

The exemption applies to lease deeds, lease-cum-sale, sub-lease, transfer of leasehold rights, and absolute sale deeds executed for industrial plots, sheds, and properties developed by the Karnataka Industrial Areas Development Board (KIADB) and Karnataka State Small Scale Industries Development Corporation (KSSIDC).

Industrial Land through KIADB

KIADB has developed 85,000 acres of industrial land accommodating 25,000 industries. The Digital Management System enables real-time tracking of land availability, allotments, and zoning compliance through GIS-based tools. Foreign companies can apply for land allotment through the single window system — the state has restructured this as Udyog Mitra Assistant (UMA), an AI-driven multilingual chatbot integrating 150+ business services across 30+ departments.

IT Parks and Technology Infrastructure

Karnataka's IT infrastructure is among the most developed in Asia, with multiple technology parks operated by both government and private developers.

Major IT Parks

• Electronic City (Bengaluru): India's first IT park, spanning 800+ acres, home to Infosys, Wipro, TCS, and hundreds of multinational companies
• International Tech Park Bangalore (ITPB): 72 acres of Grade-A IT space in Whitefield, developed by Ascendas-Singbridge (now CapitaLand)
• Manyata Tech Park: One of India's largest IT parks by built-up area, home to major GCCs including Cisco, Goldman Sachs, and ANZ
• Bagmane Tech Park: 120 acres across multiple campuses in East Bengaluru
• RMZ Ecoworld: 200-acre campus on the Outer Ring Road, hosting major technology companies

Beyond Bengaluru IT Parks

The 2025-30 policy explicitly incentivises IT development outside Bengaluru. Developers building new IT parks outside the city receive 20% of capital expenditure support, capped at INR 5 crore, after clearance from state committees. Target cities include Mysuru, Mangaluru, Hubballi-Dharwad, Belagavi, Tumakuru, Kalaburagi, and Shivamogga.

New Investment Zones

The state is developing 12 new investment zones across 30,000 acres, alongside sector-specific industrial parks including an advanced pharma park, drone park, and EV clusters. INR 3,800 crore has been allocated for clean water supply to these zones.

GCC Policy 2024-2029: Targeting 500 New Capability Centers

Karnataka's dedicated GCC Policy (2024-2029) is India's most comprehensive framework for attracting Global Capability Centers. The targets are ambitious: 500 new GCCs by 2029, creating 350,000 jobs and generating USD 50 billion in output.

GCC-Specific Incentives

Innovation Fund and AI Skilling

A dedicated INR 100 crore Innovation Fund supports joint research between GCCs and academic institutions in AI and deep tech. The AI Skilling Council drives curriculum development and workforce training, with a target of 1 lakh internships during the policy period. Companies receive reimbursement for training costs.

Global Innovation Districts

The policy introduces three new Global Innovation Districts — technology parks designed as collaborative ecosystems: one in Bengaluru and two in tier-2 cities. These districts will feature co-located GCCs, startups, and academic institutions with shared infrastructure and innovation labs.

Karnataka Startup Policy 2025-2030

Backed by an outlay of INR 518 crore, the Startup Policy 2025-2030 aims to support 25,000 startups over five years with a strong focus on emerging technologies: AI, blockchain, quantum computing, and other deep tech domains.

Key Startup Benefits

• Seed funding and grants: Available for high-potential startups through state-sponsored funds
• Incubation infrastructure: State-of-the-art incubation centres, co-working facilities, and innovation labs, including the 200-acre Startup Park in Hubballi supporting 400+ startups
• R&D support: 40% of eligible R&D spending funded (up to INR 5 crore) for units across the state
• Internship subsidies: Half the internship stipend reimbursed for 3 months (up to INR 5,000/month), with a limit of 100 interns per company
• Recruitment assistance: Ranging from INR 35 lakh to INR 7 crore for firms hiring 100+ employees

For Foreign Startups and Corporate Innovation

Foreign companies setting up innovation labs or R&D centres in Karnataka can access the same incentives as domestic startups, provided they incorporate an Indian entity. A private limited company incorporated under the Companies Act, 2013, with 100% FDI under the automatic route, is eligible for all startup benefits if it meets the DPIIT startup recognition criteria (incorporated less than 10 years ago, turnover below INR 100 crore).

ESDM Sector: Special Incentives for Electronics Manufacturing

Karnataka's Special Incentives Scheme for the ESDM (Electronics System Design and Manufacturing) sector offers some of the most generous incentives in India for electronics companies, and applies to both greenfield units and expansion or diversification projects.

ESDM-Specific Incentives

These incentives are stackable with central government PLI schemes for electronics, creating a combined benefit that can cover 30-45% of initial capital expenditure.

How Foreign Companies Can Set Up in Karnataka

The practical setup process for a foreign company establishing operations in Karnataka involves both central (national) and state-level steps:

Step 1: Entity Incorporation

Incorporate an Indian entity — typically a private limited company or a limited liability partnership — through the MCA's SPICe+ portal. The entity will be the vehicle for receiving state incentives and FDI inflows. File FC-GPR within 30 days of share allotment for the initial capital infusion.

Step 2: Register with Karnataka's Single Window

Register on the Udyog Mitra platform (investkarnataka.co.in) and file your application through the Single Window System (SWS). The SWS integrates 150+ services across 30+ departments and provides AI-driven guidance through the UMA chatbot.

Step 3: Apply for Incentives

Submit your incentive application under the relevant policy (Industrial Policy 2025-30, GCC Policy 2024-29, ESDM Incentive Scheme, or Startup Policy 2025-30). Applications are evaluated by the State Level Single Window Clearance Committee (SLSWCC) for large projects or the District Level Single Window Clearance Committee (DLSWCC) for smaller projects.

Step 4: Secure Land/Office Space

For manufacturing: Apply for KIADB land allotment or lease space in an existing industrial area. For IT/GCC: Lease space in an established IT park or apply for Beyond Bengaluru incentives if setting up outside the city.

Step 5: Obtain Operational Approvals

Depending on your business, obtain GST registration, IEC (Import Export Code), Shop and Establishment registration, and sector-specific licences. The SWS integrates many of these approvals into a single workflow.

Bengaluru vs Beyond Bengaluru: Where to Set Up

The policy creates a deliberate incentive differential to encourage setup outside Bengaluru. Here's a practical comparison:

For cost-sensitive operations (BPO, testing, support), Beyond Bengaluru locations like Mysuru and Hubballi offer 40-60% cost savings with enhanced state incentives. For talent-intensive operations (AI/ML, product engineering, financial services), Bengaluru remains the default due to talent density.

Global Investor Meet 2025 Outcomes

The Karnataka Global Investor Meet held in February 2025 attracted INR 12.5 lakh crore in investment commitments, spanning IT, manufacturing, infrastructure, and defence. Key announcements included new semiconductor fabrication investments, EV manufacturing facilities, and data centre campuses. These commitments, while subject to actual execution, signal strong private sector confidence in Karnataka's policy framework.

Infrastructure and Connectivity

Karnataka's physical infrastructure supports business operations at a level few Indian states can match. The Kempegowda International Airport (KIA) in Bengaluru handles 37+ million passengers annually with direct flights to 30+ international destinations including London, San Francisco, Tokyo, Singapore, and Dubai. Terminal 2, completed in 2024, added capacity for 25 million additional passengers.

Digital Infrastructure

Bengaluru has the highest density of submarine cable connectivity in India, with multiple Tier III and Tier IV data centres providing redundant internet connectivity. Average internet speeds in Bengaluru's IT corridors exceed 200 Mbps, with 1 Gbps dedicated leased lines available at INR 15,000-25,000 per month — critical for GCCs running real-time applications with global headquarters.

Social Infrastructure

For foreign companies relocating employees, Bengaluru offers 40+ international schools (including Stonehill International, Canadian International, and Greenwood High), world-class healthcare (Manipal Hospitals, Narayana Health, Apollo), and a cosmopolitan living environment with 150,000+ expatriates. Housing costs for expatriates range from INR 50,000-1,50,000 per month for a 3-bedroom apartment in prime localities like Whitefield, Sarjapur Road, or Indiranagar.

Comparison with Other Indian States

How does Karnataka's incentive package compare to competing states?

Karnataka's primary advantage is not any single incentive — it is the combination of the most mature technology ecosystem, dedicated GCC and startup policies, and aggressive Beyond Bengaluru incentives that collectively make it the most comprehensive state-level framework for foreign technology companies.

Sector-Specific Opportunities for Foreign Companies

Biotechnology and Life Sciences

Karnataka accounts for approximately 60% of India's biotech output, with over 800 biotech companies concentrated in the Bengaluru-Mysuru corridor. The Bangalore Helix Biotech Park and the upcoming Genome Valley expansion provide dedicated infrastructure for life sciences companies. Foreign pharmaceutical and biotech companies benefit from 25% capital subsidy on R&D equipment, 100% stamp duty exemption in Zone 1/2 areas, and access to skilled talent from institutions like IISc, NCBS, and inStem.

Aerospace and Defence

Bengaluru is home to HAL (Hindustan Aeronautics Limited), ISRO, DRDO, and a growing cluster of private aerospace companies. The FDI policy permits up to 74% foreign ownership in defence under the automatic route. Karnataka offers dedicated aerospace SEZs and defence manufacturing clusters with enhanced incentives for companies bringing proprietary technology. The Belagavi defence corridor, part of the national defence corridor initiative, provides land at concessional rates for defence manufacturing.

Electric Vehicles and Clean Energy

Karnataka has positioned itself as India's EV manufacturing hub, with dedicated EV clusters and battery manufacturing incentives under the Industrial Policy 2025-30. The policy offers additional capital subsidy of 10% (above the base subsidy) for EV component manufacturers, exemption from road tax for EVs manufactured in the state, and priority allotment of industrial land for EV projects in the Tumakuru-Chitradurga corridor.

Data Centres

With India's data centre market projected to reach 2,000 MW by 2027, Karnataka has introduced specific incentives for data centre operators: electricity duty exemption for 10 years (versus 5 years for general industry), land allocation through KIADB at concessional rates, and single window clearance for construction permits. Bengaluru already hosts major data centres operated by Equinix, NTT, CtrlS, and Yotta, making it India's largest data centre market by operational capacity.

Tax Considerations for Karnataka Operations

Foreign companies establishing operations in Karnataka must navigate both central and state tax frameworks:

Corporate Tax

Companies incorporated in India are taxed as domestic companies regardless of foreign ownership. The concessional corporate tax rate of 22% (effective 25.17% including surcharge and cess) under Section 115BAA applies to domestic companies and has no sunset. The 15% rate (effective 17.16%) under Section 115BAB for new manufacturing companies was available only to companies that commenced manufacturing by 31 March 2024; the eligibility window for Section 115BAB has since closed, so new manufacturers incorporated thereafter should evaluate 115BAA or the regular regime.

GST and State Levies

GST registration is mandatory for any business with annual turnover exceeding INR 40 lakh (INR 20 lakh for service providers). Karnataka does not levy additional state taxes on IT services, but property tax, water and sewerage charges, and local body taxes apply to office premises. IT park tenants typically benefit from consolidated utility billing and maintenance charges included in the lease terms.

Repatriation of Profits

Dividends paid to the foreign parent attract withholding tax at 20% under domestic law, reducible under applicable DTAA (e.g., 10% for Singapore, Netherlands, and Japan). Transfer pricing documentation is mandatory for all inter-company transactions, and Karnataka's tax authorities have historically been active in transfer pricing assessments, particularly for IT services companies.

Labour Market and Talent Landscape

Karnataka's talent pool is its most significant competitive advantage. The state's engineering education infrastructure produces over 200,000 engineering graduates annually from institutions including IISc, IIT Dharwad, IIIT-B, NIE Mysuru, and over 200 private engineering colleges.

Compensation Benchmarks

Beyond Bengaluru locations offer 25-35% salary savings for comparable talent, though the depth of specialised talent pools is narrower. Companies establishing Beyond Bengaluru operations typically maintain a small Bengaluru hub for senior leadership and specialised roles while building volume teams in tier-2 cities.

For foreign companies evaluating Karnataka as an entry point for India operations, our foreign subsidiary setup service handles end-to-end entity incorporation, FEMA compliance, and state incentive applications. See also our guides on GCC build-out timelines and branch office vs subsidiary comparison for entity structuring decisions.

Key Takeaways

• Karnataka's Industrial Policy 2025-30 targets INR 7.5 trillion in investments with capital subsidies up to 25% (large enterprises) and 40% (MSMEs) in backward zones
• The GCC Policy 2024-29 targets 500 new GCCs with rental reimbursements, EPF subsidies, electricity duty exemptions, and a INR 100 crore Innovation Fund
• ESDM incentives cover 25% of land cost plus 20% of plant and machinery with 100% stamp duty reimbursement, stackable with central PLI schemes
• Beyond Bengaluru locations offer 40-60% cost savings with enhanced incentives — 20% capex support for IT park developers, 100% stamp duty exemption, and rental reimbursements
• The Startup Policy 2025-30 with INR 518 crore outlay provides R&D funding (40% of eligible spend up to INR 5 crore), internship subsidies, and recruitment assistance for 100+ employee companies
• Infrastructure advantages are unmatched — KIA airport with 30+ international destinations, highest submarine cable density in India, 200+ Mbps average IT corridor speeds, 40+ international schools, and 150,000+ expatriate community