NRI Manufacturing Business in India: Setup, Incentives & Compliance

Why NRIs Are Turning to Indian Manufacturing

NRIs can set up a manufacturing business in India through the automatic FDI route, which permits 100% foreign ownership without prior RBI or government approval in most subsectors. New manufacturing companies incorporating today fall under the standard corporate tax rate of 25.17% (section 200 read with section 205(1) of the Income-tax Act, 2025; section 115BAA of the Income-tax Act, 1961) or higher; the lower 15% base rate (17.16% effective) under Section 115BAB required manufacturing to have commenced by March 31, 2024, a window that has now closed.

Per DPIIT's FDI statistics, in FY 2024-25 India received USD 50.01 billion in Foreign Direct Investment (FDI) equity inflows (USD 81.04 billion in total FDI), with manufacturing among the leading recipient sectors. The automatic route permits 100% FDI in manufacturing without prior RBI or government approval, making it one of the simplest sectors for NRI investment. Yet the gap between policy intent and execution reality is wide — factory licenses, pollution consents, labor law compliance, land acquisition, and state-level incentive negotiations create a regulatory maze that requires careful planning.

This guide covers every step an NRI needs to take, from entity selection to factory commissioning, with specific numbers, timelines, and compliance requirements verified for 2025-2026.

Entity Structure: Choosing the Right Vehicle

The entity you choose determines your FDI route, liability exposure, tax treatment, and ability to access government incentives. For manufacturing, the options narrow quickly.

Private Limited Company (Most Common)

A private limited company is the default choice for NRI manufacturers. Under the Companies Act, 2013, it requires a minimum of two directors and two shareholders. NRIs can hold up to 100% equity under the FDI automatic route in manufacturing. Key advantages include limited liability protection, ability to raise institutional funding, eligibility for PLI schemes (most require a corporate entity), and credibility with state governments for land allocation and incentive packages.

Limited Liability Partnership (LLP)

An LLP is permitted for NRI manufacturing investment only in sectors where 100% FDI is allowed under the automatic route — which includes most manufacturing subsectors. However, LLPs face practical constraints: they cannot access PLI schemes (which require company registration), the concessional corporate tax rates apply only to companies, and institutional lenders prefer companies over LLPs. For small-scale manufacturing with modest capital requirements, an LLP can work. For anything above INR 5 crore investment, a private limited company is the better choice.

Wholly Owned Subsidiary (WOS)

If you already operate a company overseas — whether in the UAE, US, or Singapore — you can establish a wholly owned subsidiary in India. The subsidiary is a separate Indian legal entity, 100% owned by the foreign parent. This structure provides clean transfer pricing documentation, easier profit repatriation through dividends, and potential access to DTAA benefits between India and your country of residence.

Branch Office or Project Office

A branch office can undertake manufacturing in India, but this route is rarely used because branch profits are taxed at the 35% foreign-company rate plus surcharge and cess (versus 25.17% all-in for a company) and repatriation requires RBI compliance. A project office is suitable for time-bound manufacturing projects but not ongoing operations. For a detailed comparison, see our guide on branch office vs subsidiary.

FDI Route and Registration Process

Manufacturing enjoys 100% FDI under the automatic route across almost all subsectors. This means no prior approval from the RBI or the Department for Promotion of Industry and Internal Trade (DPIIT) is needed. The only manufacturing subsectors requiring government approval are defence (beyond 74% FDI), certain mining activities, and items reserved for micro and small enterprises.

Step-by-Step Registration

1. Obtain Digital Signature Certificate (DSC) — Apply through a certifying authority using your passport and overseas address proof. Takes 2-3 working days. Cost: INR 1,500-3,000.
2. Apply for Director Identification Number (DIN) — Integrated into the SPICe+ form on the MCA portal.
3. File SPICe+ Form — This single form handles company name reservation, incorporation, PAN, TAN, GST registration, EPFO, and ESIC registrations. You need the Memorandum of Association (MoA) and Articles of Association (AoA) as part of the application.
4. Appoint a Resident Director — Under Section 149(3), at least one director must have resided in India for 182 days in the financial year. Since an NRI based abroad cannot fulfil this, you must appoint a resident director — typically a trusted family member, professional, or a service provider.
5. Open Corporate Bank Account — The newly incorporated company opens a current account in India. FDI capital is received into this account via inward remittance from the NRI's overseas bank.
6. File FC-GPR — Within 30 days of share allotment, the company must file Form FC-GPR with the RBI through its Authorised Dealer (AD) bank, reporting the foreign investment.
7. File FLA Return — The company must file an Annual FLA Return with the RBI by July 15 each year, reporting all foreign liabilities and assets.

The entire incorporation process takes 15-25 business days. NRIs can complete it entirely remotely, provided documents are notarized or apostilled as per Indian law. Beacon Filing's subsidiary setup service handles the end-to-end process.

The 15% Corporate Tax Advantage: Section 115BAB

India offered one of the world's most competitive tax rates for new manufacturing companies through Section 115BAB of the Income Tax Act. This provision, introduced in September 2019, was a game-changer for manufacturers that commenced operations in time — but the window to qualify (manufacturing must have commenced by March 31, 2024) has closed, so it is no longer available to NRI manufacturers incorporating a company now.

Key Details

Eligibility Conditions

• Company must be incorporated on or after October 1, 2019
• Manufacturing had to commence by March 31, 2024 — this window has closed with no further extension, so Section 115BAB is not available to companies incorporating now; it remains relevant only to units that already qualified before that date
• The company must not use any other tax incentive or deduction (Section 80-IA, 80-IB, 10AA, etc.)
• The company must be engaged exclusively in manufacturing — trading or service activities disqualify
• Once opted, the company cannot switch back to the regular tax regime

For manufacturing units that qualified before the window closed, the effective tax rate of 17.16% was lower than Singapore (17%), comparable to Ireland (12.5%), and significantly lower than the US (21% federal). NRI manufacturers incorporating now instead compare against India's standard rate of 25.17% under section 200, which remains competitive globally though no longer at the 115BAB level.

PLI Scheme: Production Linked Incentives

The Production Linked Incentive (PLI) scheme is India's flagship industrial policy for attracting manufacturing investment. With a total outlay of INR 1.97 lakh crore across 14 sectors, PLI provides cash incentives of 4-6% on incremental sales over a 5-year period.

Sectors Covered Under PLI

How NRIs Can Access PLI

PLI applications are open to any company incorporated in India, regardless of ownership nationality. An NRI-owned private limited company in India can apply for PLI on the same terms as a domestic company. The key requirement is meeting minimum investment thresholds and incremental production targets set by each sector's scheme guidelines. As of July 2025, 806 applications had been approved across all PLI sectors, with realized investments reaching INR 1.76 lakh crore (per a Government of India reply in the Lok Sabha, July 2025).

State-Level Incentives and Industrial Parks

Beyond central government schemes, Indian states compete aggressively for manufacturing investment through their own industrial policies. NRI manufacturers should evaluate state incentives before choosing a factory location.

Key State Incentives

• Capital subsidy: States like Tamil Nadu, Gujarat, and Maharashtra offer 15-25% capital subsidy on fixed assets (land, building, plant, and machinery)
• Stamp duty exemption: Many states waive stamp duty on land purchase and lease agreements for manufacturing units
• Electricity duty exemption: 5-10 year exemptions on electricity duty for new manufacturing units
• SGST reimbursement: Some states reimburse state GST paid on raw material purchases for 5-7 years
• Land at subsidized rates: State Industrial Development Corporations (SIDCs) offer plots in industrial parks at 20-50% below market rates

Special Economic Zones (SEZs)

SEZs offer additional benefits for export-oriented manufacturing: duty-free import of raw materials, single-window clearance, and world-class infrastructure. The Section 10AA income tax holiday (100% of export income for 5 years, 50% for the next 5) is closed to new units — it applied only to SEZ units that commenced operations by March 31, 2020 (extended to September 30, 2020 for units whose approval was already in place), so it is not available to a manufacturing unit set up now. India has over 270 operational SEZs across all major states.

Factory Licensing and Environmental Permits

Setting up a factory requires multiple permits beyond company incorporation. These are state-level approvals and vary by location and industry.

Factory License

Factory regulation now sits under the Occupational Safety, Health and Working Conditions Code, 2020, which came into force on 21 November 2025 and replaced the Factories Act, 1948. Under the Code, premises with 20 or more workers using power (or 40 or more without power) are regulated as factories and must be registered and licensed with the state factory authorities (the Chief Inspector-cum-Facilitator). State rules under the Code are still being notified, so in practice state factory inspectorates continue to process applications on the pre-Code pattern, and licences issued under the 1948 Act carry over under the Code's savings provisions. Requirements include a building plan approval showing factory layout, safety provisions, ventilation, and sanitation. Processing time is 30-60 days in most states.

Consent to Establish (CTE) and Consent to Operate (CTO)

The State Pollution Control Board (SPCB) issues two critical permits. CTE is required before construction begins — it approves the proposed manufacturing process, pollution control equipment, and waste treatment plans. CTO is issued after construction, confirming all pollution control measures are installed and operational. The Central Pollution Control Board classifies industries into four categories: Red (highest pollution, annual renewal), Orange (renewal every 2 years), Green (renewal every 3 years), and White (no consent required).

Other Key Permits

Land Acquisition: Options for NRI Manufacturers

Land is often the most complex part of setting up a manufacturing unit in India. NRIs have several routes.

Industrial Plot from SIDC

State Industrial Development Corporations allocate ready-to-use industrial plots in designated industrial areas and parks. Advantages include clear title, pre-approved industrial zoning, basic infrastructure (roads, water, power), and streamlined permission processes. Costs vary by state — INR 1,500-5,000 per square meter in Tier 2/3 cities, INR 8,000-25,000 in metros.

Private Land Purchase

Purchasing private land for industrial use requires zoning verification, land use change approval (if needed), title verification (at least 30 years of chain), environmental clearance for the site, and NA (Non-Agricultural) conversion if agricultural land. NRIs under FEMA cannot purchase agricultural land directly. The land must be converted to industrial use before or as part of the purchase.

Lease Arrangements

Many NRI manufacturers prefer long-term industrial leases (10-30 years) over outright purchase. This reduces upfront capital, avoids land title risks, and provides flexibility to relocate if incentive terms change.

Compliance Calendar for NRI Manufacturing Companies

Once operational, an NRI-owned manufacturing company must meet these recurring compliance obligations.

On the transfer pricing report: for tax year 2026-27 onwards the accountant's report under section 172 of the Income-tax Act, 2025 is Form No. 48 (rule 85 of the Income-tax Rules, 2026). For FY 2025-26 and earlier years it was Form 3CEB under Rule 10E of the Income-tax Rules, 1962, furnished under section 92E of the Income-tax Act, 1961. Which of the two a filing made after 1 April 2026 in respect of FY 2025-26 must use is not settled by the notified rules — the Income-tax Rules, 2026 contain no repeal-and-savings provision. Check the form actually enabled on the e-filing portal before filing, and take professional advice.

Read our complete guide on 12 compliance deadlines foreign companies miss in India for a full breakdown of penalties and grace periods.

Funding Your Manufacturing Unit: Capital Structure

NRI manufacturers must carefully plan how capital flows into the Indian entity, as FEMA and RBI regulations govern every inward remittance.

Equity (Share Capital)

The most straightforward route. The NRI subscribes to shares of the Indian company through inward remittance from their NRE/FCNR account or directly from their overseas bank. Share pricing must comply with FEMA valuation norms — for unlisted companies, shares must be issued at or above fair market value determined by a SEBI-registered merchant banker or a Chartered Accountant using a recognized valuation methodology. FC-GPR must be filed within 30 days.

External Commercial Borrowings (ECBs)

An NRI who holds equity in the Indian company can also lend to it through External Commercial Borrowings (ECBs) under the automatic route, subject to the RBI's revised ECB framework (Notification FEMA 3(R)(5)/2026-RB, in force from 16 February 2026). Under the automatic route a borrower can have outstanding ECB up to USD 1 billion, or total outstanding borrowing — external and domestic combined — up to 300% of net worth, whichever is higher. The minimum average maturity period is three years, and for ECB with average maturity of three years or more there is no prescribed all-in-cost ceiling: pricing simply has to be in line with prevailing market conditions. Manufacturing-sector borrowers get a further carve-out — ECB of one to three years' maturity, capped at USD 150 million outstanding. This is useful for capital-intensive manufacturing where debt funding is needed alongside equity.

NRI Deposits

NRIs can place FCNR(B) or NRE fixed deposits with Indian banks, which can then be used by the bank to lend to Indian companies. This is an indirect funding route that avoids FDI compliance but also means the NRI does not hold equity in the company.

Common Mistakes NRIs Make in Manufacturing Setup

1. Underestimating Timeline

From incorporation to factory commissioning, the realistic timeline is 12-18 months, not the 3-6 months many NRIs expect. Land acquisition alone can take 4-6 months, environmental clearances 3-4 months, and construction 6-8 months.

2. Ignoring State-Level Approvals

Company incorporation is a central government process. But factory operations require state-level permits — factory license, pollution consent, fire NOC, electrical inspection, labor registrations. Many NRIs focus on MCA compliance and discover state requirements only when trying to start production.

3. Not Appointing Ground-Level Management

Manufacturing cannot be managed entirely remotely. Unlike IT services or consulting, a factory requires daily supervision of production, quality control, safety compliance, and labor management. NRIs must appoint a plant manager and operations team on the ground from day one.

4. Choosing Location Based on Land Cost Alone

The cheapest land is often in areas with poor infrastructure — unreliable power, limited road connectivity, no skilled labor pool. The total cost of operations (including logistics, power backup, and labor recruitment) matters more than the land cost per square meter.

5. Mixing Personal and Business Finances

Routing business capital through personal NRO accounts instead of the company's corporate account creates FEMA compliance issues and complicates transfer pricing documentation. Always maintain clean fund flow: overseas bank to Indian company's current account via proper banking channels.

Key Takeaways

• 100% FDI under automatic route — Manufacturing allows full NRI ownership without prior RBI or government approval, with entity incorporation taking 15-25 business days via SPICe+
• Section 115BAB window closed — the 15% base rate (17.16% effective) required manufacturing to commence by March 31, 2024; new manufacturing companies today fall under the standard 25.17% rate (section 200 of the Income-tax Act, 2025)
• PLI incentives of 4-6% on sales — INR 1.97 lakh crore across 14 sectors, open to NRI-owned Indian companies on the same terms as domestic companies
• State incentives stack with central schemes — Capital subsidies, stamp duty exemptions, and electricity duty waivers from state industrial policies compound with central schemes like PLI
• Factory licensing is multi-layered — Beyond MCA incorporation, you need factory license, pollution consent (CTE and CTO), fire NOC, and sector-specific permits that take 3-6 months collectively
• Plan for 12-18 months — From incorporation to factory commissioning, the realistic timeline includes land acquisition, construction, licensing, and trial production