Register & Operate Your Business in Karnataka

Karnataka as a Business Destination

Karnataka is India's innovation engine and home to the world's fourth-largest technology cluster. With a Gross State Domestic Product (GSDP) of approximately INR 30.70 trillion (US$ 359 billion) in FY 2025-26, Karnataka has grown at a CAGR of 11.38% over the past decade, making it one of India's fastest-growing state economies.

The state is India's second-largest FDI destination, attracting Foreign Direct Investment of US$ 63.34 billion between October 2019 and June 2025 — accounting for 21% of India's cumulative FDI inflows. In FY 2024-25, Maharashtra and Karnataka jointly attracted 51% of India's total FDI. The services sector contributes 63.2% of the state's GSVA, followed by industry at 21.5% and agriculture at 15.4%.

Bengaluru, the state capital, serves as a global IT hub hosting major technology companies including Infosys, Wipro, and TCS, along with over 500 multinational R&D centres. For foreign companies planning to establish a subsidiary in India, Karnataka offers a mature technology ecosystem, world-class talent, and a business-friendly regulatory environment.

Key Cities & Industrial Corridors

Karnataka's economic activity is concentrated in Bengaluru but is rapidly diversifying across several emerging cities:

• Bengaluru — India's Silicon Valley and the state's economic engine. Bengaluru recorded a historic 21.8 million square feet of office leasing in 2024, the highest of any Indian city, driven by technology companies, Global Capability Centers (GCCs), and flexible-space operators. Key IT corridors include Whitefield, Electronic City, Outer Ring Road (ORR), and Manyata Tech Park. The city hosts over 67,000 startups and is India's leading startup ecosystem.
• Mysuru (Mysore) — Emerging IT and heritage city. Infosys has its largest training campus here. Mysuru offers significantly lower operational costs than Bengaluru, with office rents at INR 35-55/sq ft/month. The city is developing as a hub for IT/ITeS, food processing, and precision manufacturing.
• Hubballi-Dharwad — North Karnataka's commercial centre, growing as a hub for IT, engineering, and automotive components. The IIT Dharwad campus is creating a new technology corridor in the region.
• Mangaluru — Karnataka's port city with a multi-product SEZ, petrochemical industries, and a growing IT presence. The Mangalore SEZ covers 1,757 acres across three locations.

The Bengaluru-Chennai Expressway (258 km, under construction) and the Bengaluru Satellite Town Ring Road (280.8 km) are creating new industrial corridors. The proposed AI City in Bidadi, spanning 9,000 acres, aims to become a global centre for artificial intelligence and semiconductor research.

State Tax & Compliance

Foreign companies operating in Karnataka must navigate state-specific tax and regulatory obligations:

Professional Tax

Professional tax in Karnataka was revised effective April 2025. The maximum annual professional tax is INR 2,500 per employee (INR 200/month with INR 300 in February). Employees earning between INR 15,001 and INR 24,999 per month are now exempt from professional tax — providing relief to middle-income earners. Employers must register on the Karnataka Professional Tax portal and deduct tax from eligible employees' salaries each month.

Stamp Duty

Stamp duty on commercial lease agreements in Karnataka varies by tenure:

• Up to 1 year: 0.5% on average annual rent plus advance and premium
• 1 to 10 years: 1% on average annual rent plus advance and premium
• 10 to 20 years: 2% on average annual rent plus advance and premium

For property purchases, stamp duty ranges from 2% (up to INR 20 lakh) to 5% (above INR 45 lakh). Registration charges were doubled from 1% to 2% effective August 31, 2025, applying to residential, commercial, and plotted developments. This is an important cost factor for companies leasing or purchasing office space.

Labour Welfare Fund

Effective January 2025, the Karnataka Labour Welfare Fund contribution rates increased significantly: employee contribution is INR 50 and employer contribution is INR 100 per employee per year (up from INR 20 and INR 40 respectively). All establishments covered under the Act must contribute annually.

Shops & Establishment Act

All commercial establishments in Karnataka must register under the Karnataka Shops and Commercial Establishments Act, 1961. This act governs working hours, holidays, payment of wages, and conditions of service. Registration must be obtained within 30 days of commencement of business.

State Startup & Investment Policy

The Karnataka Startup Policy 2025-2030 positions the state as a global innovation hub, building on Bengaluru's leadership as India's startup capital.

Key incentives include:

• ELEVATE Program: The flagship grant-in-aid scheme offers up to INR 50 lakh per startup. Since its launch in 2017, ELEVATE has disbursed INR 287.85 crore in seed funding to 1,230 startups across Karnataka. The 2025 round recognised 103 ELEVATE winners, 33 ELEVATE Unnati winners (SC/ST community), and 10 ELEVATE Minorities startups.
• Women Entrepreneurship: Direct loans of INR 10 lakh for female entrepreneurs, with 25% of the venture capital fund reserved for women-led startups.
• Regional Innovation: Dedicated seed funds and rural innovation centres for startups operating outside Bengaluru, particularly in cities like Mysuru, Hubballi, and Mangaluru.
• Preferential Market Access (PMA): Government contracts are partially reserved for local startups, providing real project experience and revenue.
• Power & Infrastructure Incentives: Power tariff concessions extended to 288 IT/ITeS firms, stamp duty exemptions for 38 firms, and rental reimbursements for companies outside Bengaluru.

The Karnataka Industrial Policy also provides sector-specific incentives for electronics, aerospace, biotechnology, and electric vehicle manufacturing, including capital investment subsidies and land at concessional rates through KIADB (Karnataka Industrial Areas Development Board).

Land & Real Estate

Karnataka offers a diverse range of commercial real estate options across price points, from ultra-premium CBD spaces in central Bengaluru to affordable office parks in Mysuru and Hubballi. The state's commercial real estate market continues to show strong growth, driven by sustained demand from technology companies, GCCs, and flexible workspace operators. Bengaluru alone absorbed over 21.8 million square feet of office space in 2024, making it India's top-performing office market.

• Bengaluru CBD (MG Road, Lavelle Road): Premium Grade A office space at INR 120-200/sq ft/month, favoured by financial services and consulting firms.
• Outer Ring Road & Whitefield: The primary IT corridor with rents at INR 70-100/sq ft/month. ORR is home to major tech parks including RMZ Ecoworld, Prestige Tech Park, and Bagmane Tech Park.
• Electronic City: South Bengaluru's IT hub with rents at INR 55-80/sq ft/month, housing Infosys, Wipro, and HCL campuses.
• Overall Market: Bengaluru office rents rose to INR 93.6/sq ft/month in Q4 2024, with a projected annual increase of 4-4.5% through 2026.

Key Special Economic Zones and IT parks in Karnataka:

• International Tech Park Bangalore (ITPB), Whitefield — India-Singapore joint venture, offering SEZ and non-SEZ office space with world-class amenities.
• Electronic City — One of India's largest IT clusters, spanning over 800 acres with 200+ companies.
• Embassy Manyata Business Park — North Bengaluru's premier IT campus covering 120 acres, housing companies like IBM, Cognizant, and ANZ.
• Mangalore SEZ — Multi-product SEZ covering 1,757 acres for manufacturing, petrochemicals, and IT.

The upcoming AI City at Bidadi (9,000 acres) is set to be a transformative addition, targeting AI, semiconductors, and SaaS companies. For guidance on choosing the right location in India, Beacon Filing provides detailed location analysis based on your sector and requirements.

Labour & Employment Rules

Karnataka follows the central Labour Codes with state-specific modifications:

• Karnataka Industrial Establishments (National and Festival Holidays) Act: Provides for 5 national holidays and 5 festival holidays per year, in addition to weekly offs and earned leave.
• Working Hours: Under the Shops & Establishments Act, maximum working hours are 9 per day and 48 per week. Overtime is payable at twice the ordinary rate of wages.
• Contract Labour: Establishments with 20+ contract workers must register under the Contract Labour (Regulation and Abolition) Act. Karnataka has implemented the central act with state-specific rules on contractor licensing.
• Industrial Disputes: Establishments with 100+ workers require prior government approval for layoffs, retrenchment, or closure. The Karnataka government has been considering raising this threshold to 300 workers under the new Industrial Relations Code.
• Employee Benefits: EPF (12% each from employer and employee) and ESI (employer 3.25%, employee 0.75%) apply as per central rules. Gratuity is payable after 5 years of continuous service.

Beacon Filing manages payroll processing and compliance outsourcing for foreign companies across Karnataka, ensuring full adherence to all labour law requirements.

Infrastructure

Karnataka has invested heavily in infrastructure to support its position as India's technology capital:

Airports

Kempegowda International Airport (KIA), Bengaluru is India's third-busiest airport with two terminals and a new 28,300-sq-metre domestic cargo terminal opened in February 2025. Terminal 2 expansion is planned for completion by 2028. A second Bengaluru airport is under consideration, with three shortlisted locations: Kanakapura Road, Tumakuru Road, and Mysuru Road.

Additional airports include Kuvempu Airport (Shivamogga), Mysore Airport, Mangaluru International Airport, and Hubballi Airport — providing connectivity across the state.

Metro & Rail

Namma Metro in Bengaluru has two operational lines (Purple and Green). The Blue Line extension to the airport (58.19 km) is at 52.5% completion and targeted for 2027. The Bengaluru Suburban Rail Project will span 148 km across four corridors with 64 stations, slated for completion by 2026.

Roads & Expressways

The Bengaluru-Chennai Expressway (258 km) will connect the two major South Indian cities. The Bengaluru Satellite Town Ring Road (280.8 km, 4-6 lanes) connects 12 satellite towns. These projects will significantly improve connectivity for manufacturing and logistics operations.

Ports

The New Mangalore Port is Karnataka's major port, handling bulk cargo, petroleum products, and containers. The port is being expanded to handle 50+ million tonnes annually, enhancing the state's trade connectivity.

Power & Digital Infrastructure

Karnataka has an installed power capacity of over 32,000 MW, with approximately 55% from renewable sources — one of the highest proportions in India. The state offers concessional power tariffs for IT/ITeS companies and SEZ units. Bengaluru is one of India's best-connected cities for internet infrastructure, with multiple submarine cable landing points accessible via Chennai and multiple data centre operators, making it ideal for companies with high bandwidth and low-latency requirements.

Frequently Asked Questions