# PLI Scheme 2026: Manufacturing Incentives in India for Foreign Firms

> Source: https://krystal7.com/insights/manufacturing-incentives-india-pli-state-policies
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 26 Mar 2026; updated 24 Oct 2026
> Summary: India's PLI schemes cover 14 sectors and had disbursed INR 28,748 crore by 31 Dec 2025. See eligibility, state top ups and how incentives are taxed.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- India's PLI schemes pay a percentage of incremental sales over a base year across 14 sectors. By 31 Dec 2025 the government had approved 836 applications and disbursed INR 28,748 crore.
- Only a company registered in India can apply. A foreign manufacturer claims PLI through its Indian subsidiary, which must meet both the incremental investment and incremental sales thresholds each year.
- The PLI for large scale electronics ran from FY 2020-21 to FY 2025-26. The Electronics Component Manufacturing Scheme of 8 Apr 2025 now carries an outlay of INR 40,000 crore.
- State policies add capital subsidy, SGST reimbursement and stamp duty relief. Uttar Pradesh's 2022 policy also offers a top up equal to 30 percent of central PLI incentives.
- PLI and SGST reimbursements are taxable income under section 2(49)(w) of the Income Tax Act, 2025. A capital subsidy linked to an asset reduces its actual cost under section 39(1)(d) instead.

**A PLI scheme is a central incentive that pays an Indian manufacturer a percentage of its incremental sales over a base year. India runs PLI schemes in 14 sectors. By 31 Dec 2025 the government had approved 836 applications and disbursed INR 28,748 crore. A foreign group claims through its Indian subsidiary. States add capital subsidy, SGST reimbursement and stamp duty relief. All of these incentives are taxable in some form under the Income Tax Act, 2025.**

This page is for foreign manufacturers deciding where and how to build in India. It covers how PLI schemes work, their status in 2026, what two major states add, how each incentive is taxed and the steps to claim.

## What is the PLI scheme?

The PLI scheme is a family of central schemes that pay a manufacturer cash for selling more goods made in India. Each scheme pays a set percentage of incremental sales over a base year, if the company also meets an investment threshold. The schemes cover 14 sectors with a total outlay of INR 1.97 lakh crore (PIB, 2 Aug 2023).

The first schemes started in April 2020 with mobile phones, specified electronic components, medical devices and key starting materials and active pharmaceutical ingredients (PIB Research note, 24 Aug 2025). The rest followed in 2021. Each ministry writes its own guidelines and runs its own scheme. An Empowered Group of Secretaries reviews them.

The government's own outlay figure has moved. PIB used INR 1.97 lakh crore on 2 Aug 2023 and in its research note of 24 Aug 2025. Its releases of 20 Feb 2026 and 21 Jul 2026 use INR 1.91 lakh crore. None of these releases explains the difference. Quote the figure from the latest release and read the outlay in your own sector's guidelines.

The money only flows on performance. A company that misses its threshold in a year gets nothing for that year. It can still claim in later years if it meets them (MeitY PLI FAQ 10).

## Which sectors does the PLI scheme cover?

The PLI scheme covers 14 sectors, from mobile phones and pharmaceuticals to solar modules, batteries and drones. Each has a separate ministry. Investment under all 14 reached INR 2,40,138 crore by 31 Mar 2026 (PIB, 21 Jul 2026). Solar modules, pharmaceuticals and automobiles attracted the most.

| Sector | Ministry or department | Investment to 31 Mar 2026 (INR crore) | Direct employment to 31 Mar 2026 |
|---|---|---|---|
| Large scale electronics manufacturing | MeitY | 20,580 | 1,69,249 |
| IT hardware 2.0 | MeitY | 908 | 4,859 |
| Bulk drugs (KSMs, intermediates, APIs) | Department of Pharmaceuticals | 5,070 | 5,226 |
| Medical devices | Department of Pharmaceuticals | 1,151 | 5,268 |
| Pharmaceuticals | Department of Pharmaceuticals | 45,158 | 1,14,880 |
| Telecom and networking products | Department of Telecommunications | 5,278 | 33,610 |
| Food products | Ministry of Food Processing Industries | 9,207 | 3,29,200 |
| Drones and drone components | Ministry of Civil Aviation | 595 | 2,650 |
| White goods (ACs and LEDs) | DPIIT | 6,409 | 52,703 |
| Automobiles and auto components | Ministry of Heavy Industries | 44,326 | 67,820 |
| Advanced Chemistry Cell battery | Ministry of Heavy Industries | 4,570 | 1,245 |
| Textile products (MMF and technical textiles) | Ministry of Textiles | 8,117 | 33,427 |
| Specialty steel | Ministry of Steel | 23,896 | 14,138 |
| High efficiency solar PV modules | MNRE | 64,873 | 14,794 |
| **Total** | | **2,40,138** | **8,49,069** |

Source: [PIB release 2287008, 21 Jul 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2287008&reg=48&lang=2), Annexure I. The release also reports 5.66 lakh indirect jobs in three sectors.

PIB has published outlays for some sectors:

1. Automobiles and auto components: INR 25,938 crore ([PIB, 28 Jul 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2290691&reg=48&lang=2)).
2. Pharmaceuticals: INR 15,000 crore; textiles: INR 10,683 crore; white goods: INR 6,238 crore; drones: INR 120 crore of funding for three years ([PIB Research note, 24 Aug 2025](https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/aug/doc2025824619301.pdf)).
3. Solar PV: INR 4,500 crore in the first tranche and INR 19,500 crore in the second ([PIB Research note, 3 Mar 2025](https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/mar/doc202533511601.pdf)).

## How does the PLI incentive work?

A PLI incentive is a percentage of incremental sales of eligible goods made in India, measured against a base year. The company must meet two tests each year: a cumulative incremental investment target and an incremental sales target. The ministry pays only after the Project Management Agency checks the claim. Annual payouts are capped per applicant.

The large scale electronics scheme shows the mechanics. MeitY notified it on 1 Apr 2020 ([MeitY PLI FAQs](https://www.meity.gov.in/static/uploads/2024/02/Frequently_Asked_Questions_on_PLI_Scheme.pdf)):

| Feature | Rule in the PLI for large scale electronics | MeitY FAQ |
|---|---|---|
| Incentive | 4% to 6% of incremental sales over the base year | FAQ 1 |
| Base year | FY 2019-20 | FAQ 1, 8, 11 |
| Tenure | Five years; extended to six years, FY 2020-21 to FY 2025-26 | FAQ 1; MeitY order of 23 Sep 2021 |
| Investment test | Cumulative incremental investment; for phones of invoice value INR 15,000 and above, INR 250 crore by 31 Mar 2021 rising to INR 1,000 crore by 2024 | FAQ 11 |
| Investment counted | Only from 1 Apr 2020; land and building excluded | FAQ 12, 14 |
| Global revenue to qualify | Above INR 10,000 crore for phones of INR 15,000 and above; above INR 50 crore for components | FAQ 5 |
| Applicant | Company registered in India; one application, one segment | FAQ 3, 19 |
| Claims | Quarterly, half yearly or annual, once per period | FAQ 24 |
| Annual ceiling | Set by outlay and number of eligible applicants; unused amounts may be reallocated | FAQ 23 |

A [MeitY order of 23 Sep 2021](https://www.meity.gov.in/static/uploads/2024/02/Extension-of-tenure-of-PLI-LSEM_23.09.20211-1.pdf) extended the tenure. First round companies may choose any five consecutive years between FY 2020-21 and FY 2025-26. The base year stayed FY 2019-20.

Other schemes vary the design. The automobiles scheme sets a minimum 50 percent Domestic Value Addition for advanced automotive technology products. It counts R&D spending towards the investment criteria (PIB, 28 Jul 2026). Read the guidelines of your own sector, not a summary of another one.

## Can a foreign company apply for a PLI scheme?

A foreign company cannot apply in its own name. The applicant must be a company registered in India (MeitY PLI FAQ 3). A foreign group therefore sets up or uses an Indian Private Limited company, invests through FDI and applies through that company. Global group revenue can count towards qualification thresholds where the guidelines allow.

Three FDI points come first.

1. **Route.** Most manufacturing sectors allow 100 percent FDI under the automatic route. See our page on [FDI automatic route sectors](/insights/fdi-automatic-route-sectors-in-india).
2. **Land border investors.** Investors from countries sharing a land border with India need government approval under Press Note 3 (2020 Series). See our note on [Press Note 3](/insights/press-note-3-fdi-land-border-countries).
3. **Category.** Some schemes keep a category for domestic companies only. The electronics scheme defines domestic companies by reference to the 2017 FDI circular (MeitY PLI FAQ 15). A foreign owned subsidiary falls in the general category.

Group revenue matters for qualification. In the electronics scheme, revenue of group companies counts. If several applicants claim the same group revenue, it is split equally (MeitY PLI FAQ 6). Plan which group entity applies before the window opens.

For set up, see our guides on [manufacturing company registration](/insights/manufacturing-company-registration-in-india) and [chemical company registration](/insights/chemical-company-registration-in-india).

## What is the status of PLI schemes in 2026?

On 26 Mar 2026 the PLI schemes were in their later years. As on 31 Dec 2025 the government reported 836 approved applications and disbursements of INR 28,748 crore. Cumulative investment was above INR 2.16 lakh crore ([PIB, 20 Feb 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2230621&reg=3&lang=1)). The large scale electronics scheme's last year was FY 2025-26.

Three facts shape a new entrant's view in early 2026.

1. **Most windows are closed.** The PLI schemes approved their beneficiaries between 2020 and 2023. The electronics scheme's application window closed on 31 Jul 2020 (MeitY PLI FAQ 4). A new foreign entrant usually cannot join an old PLI round. It can join a new scheme or a new tranche.
2. **The successor schemes are open.** MeitY notified the Electronics Component Manufacturing Scheme (ECMS) on 8 Apr 2025. Its third tranche, approved on 2 Jan 2026, took the total to 46 applications in 11 states with INR 54,567 crore of investment. The Union Budget of 1 Feb 2026 raised its outlay from INR 22,919 crore to INR 40,000 crore. See the [PIB Research note of 3 Feb 2026](https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/feb/doc202623777901.pdf).
3. **Budgets follow claims.** Budget 2025-26 set INR 9,000 crore for electronics and IT hardware PLI and INR 2,818.85 crore for automobiles (PIB Research note, 3 Mar 2025).

| Scheme | Status around 26 Mar 2026 | Source |
|---|---|---|
| PLI, large scale electronics | Final year FY 2025-26; claims continue | MeitY order of 23 Sep 2021 |
| PLI, IT hardware 2.0 | Running; INR 908 crore invested by 31 Mar 2026 | PIB, 21 Jul 2026 |
| PLI, automobiles and auto components | Running; outlay INR 25,938 crore | PIB, 28 Jul 2026 |
| PLI, solar PV modules | Two tranches; investment commitments of nearly INR 52,942 crore | PIB, 20 Feb 2026 |
| ECMS | Open; outlay raised to INR 40,000 crore in Budget 2026-27 | PIB Research note, 3 Feb 2026 |
| India Semiconductor Mission | Separate package of INR 76,000 crore, not a PLI | PIB Research note, 24 Aug 2025 |

## What do state industrial policies offer?

State policies stack on top of central schemes. The common tools are capital subsidy on eligible investment, reimbursement of SGST paid, stamp duty exemption on land, electricity duty exemption and land price concessions. Each state sets its own project bands, district categories, caps and periods. The two examples below are Uttar Pradesh and Tamil Nadu.

### Uttar Pradesh Industrial Investment and Employment Promotion Policy 2022

The [UP policy](https://invest.up.gov.in/wp-content/uploads/2023/02/Uttar_Pradesh_Industrial_Investment_Employment_Promotion_Policy_2022-en.pdf) runs for five years from its effective date (para 12.1.2). It sorts projects by capital investment. Large starts above INR 50 crore, Mega at INR 200 crore, Super Mega at INR 500 crore and Ultra Mega at INR 3,000 crore. The investor picks one of three options under para 12.3.

1. **Capital subsidy (12.3.1).** The subsidy is a percentage of Eligible Capital Investment. It runs from 10 percent (Large, Gautam Buddh Nagar and Ghaziabad) to 30 percent (Ultra Mega, Bundelkhand and Poorvanchal). UP pays it over 10 to 20 years, scaled by capacity utilisation.
2. **Net SGST reimbursement (12.3.2).** UP reimburses 100 percent of net SGST deposited, for 6 to 16 years. Annual and overall ceilings apply as a percentage of ECI.
3. **PLI top up (12.3.3).** UP pays 30 percent of the incentive sanctioned under a Government of India PLI scheme, as the central incentive is disbursed. The cap is 100 percent of ECI.

Stamp duty exemption is separate (para 12.2). It is 100 percent in Bundelkhand and Poorvanchal, 75 percent in Madhyanchal and Paschimanchal, and 50 percent in Gautam Buddh Nagar and Ghaziabad. The investor deposits a bank guarantee for the duty, released on commercial production. Under para 12.8, central incentives can be combined with these. Incentives under other UP policies cannot, with limited export exceptions.

| UP region | Capital subsidy, Mega project (% of ECI, period) | SGST reimbursement, Mega project (period; annual and overall cap as % of ECI) | Stamp duty exemption |
|---|---|---|---|
| Gautam Buddh Nagar and Ghaziabad | 18%, 12 years | 12 years; 7% a year; 80% overall | 50% |
| Madhyanchal and Paschimanchal | 20%, 12 years | 12 years; 17% a year; 200% overall | 75% |
| Bundelkhand and Poorvanchal | 22%, 12 years | 12 years; 25% a year; 300% overall | 100% |

Source: UP Industrial Investment and Employment Promotion Policy 2022, Tables 3 and 5, paras 12.2 and 12.3. The annual capital subsidy ceiling for a Mega project is INR 10 crore (INR 15 crore with boosters).

### Tamil Nadu Industrial Policy 2021

The [Tamil Nadu policy](https://storage.investingintamilnadu.com/Guidance/Uploads/Others/industrial_policy_2021.pdf) covers investments made from 1 Jan 2021. Its stated validity runs to 31 Mar 2025 (para 1.3).

Guidance Tamil Nadu lists a notification titled [TNIP 2021 Validity Extension](https://www.investingintamilnadu.com/business-in-tamil-nadu/policy-notifications/tnip-2021-validity-extension). Its PDF is a scanned image that we could not read, so we cannot state the new date. The same listing shows sector policies only and no replacement industrial policy. Confirm the extended validity with Guidance Tamil Nadu before you model any number.

The policy bands projects by investment: Sub Large (INR 50 to 300 crore), Large (INR 300 to 500 crore), Mega (INR 500 to 5,000 crore) and Ultra Mega (above INR 5,000 crore). It groups districts into A, B and C.

The investor makes a one time choice under para 13.1:

1. **SGST reimbursement (13.1.1).** 100 percent of SGST on final products sold in Tamil Nadu, for 15 years.
2. **Fixed capital subsidy (13.1.2).** The rate runs from 10 percent of eligible fixed assets (Large, B district) to 25 percent (Ultra Mega, C district). It is paid over 10 to 15 years.
3. **Flexible capital subsidy (13.1.3).** The cap is 35, 37 or 40 percent of eligible fixed assets in A, B and C districts. It builds from a standard rate plus boosters.
4. **Turnover based subsidy (13.1.4).** Mega and Ultra Mega projects with at least 2,000 jobs get 1.5 to 2 percent of turnover. The cap is 4 percent of eligible fixed assets a year for 10 years.

SIPCOT parks carry a stamp duty concession of 50 percent in A and B districts and 100 percent in C districts (para 13.5.2). New manufacturing projects get five years of electricity tax exemption (para 13.5.1). Ultra Mega projects get a 5 percent interest subvention up to INR 4 crore a year for six years (para 13.4).

## How do UP and Tamil Nadu compare?

UP gives a direct link to central PLI through its 30 percent top up. Tamil Nadu offers a longer SGST option of 15 years and a turnover based route for large employers. Both pay capital subsidy over a decade or more. Both tie stamp duty relief to location.

| Feature | Uttar Pradesh (IIEPP 2022) | Tamil Nadu (Industrial Policy 2021) |
|---|---|---|
| Validity | Five years from effective date | To 31 Mar 2025 under para 1.3; an extension notification is listed |
| Project bands | Large, Mega, Super Mega, Ultra Mega | Sub Large, Large, Mega, Ultra Mega |
| Capital subsidy | 10% to 30% of ECI by region and band | 10% to 25% fixed, or up to 40% flexible, of eligible fixed assets |
| SGST reimbursement | 100% of net SGST, 6 to 16 years, capped | 100% of SGST on in state sales, 15 years |
| Link to central PLI | 30% top up, capped at 100% of ECI | No PLI top up among the para 13.1 options |
| Stamp duty | 50%, 75% or 100% by region | 50% or 100% in SIPCOT parks by district |
| Choice | One of three options | One time, mutually exclusive choice |

Sources: the two policy documents linked above.

Read the state's operational guidelines before you model any number. The headline percentage is the start. Eligible investment definitions, capacity utilisation multiples and annual caps decide the cash.

## How are PLI incentives and state subsidies taxed in India?

PLI incentives and state reimbursements are taxable income. Section 2(49)(w) of the Income Tax Act, 2025 includes government assistance in "income". It covers any subsidy, grant, cash incentive, duty drawback, waiver, concession or reimbursement from the Central or a State Government. The one exception that matters to manufacturers is a subsidy that reduces the actual cost of an asset under section 39.

[Section 39(1)(d)](https://www.incometaxindia.gov.in/w/section-39-172) reduces an asset's actual cost by any subsidy "relatable to the acquisition of the asset". Section 39(3) apportions a subsidy that covers a group of assets across them. [Section 2(49)(w)(i)](https://www.incometaxindia.gov.in/w/section-2-263) then excludes that subsidy from income. The relief then comes through lower depreciation, not as a lump sum.

| Incentive | Income tax treatment | Effect on MAT book profit | GST |
|---|---|---|---|
| Central PLI incentive on incremental sales | Income under s.2(49)(w) in the year it accrues | Included if credited to profit and loss | Not consideration for a supply, in our view |
| State SGST reimbursement | Income under s.2(49)(w) | Included if credited to profit and loss | Government subsidy, excluded from value under CGST Act s.15(2)(e) |
| State capital subsidy linked to plant and machinery | Reduces actual cost under s.39(1)(d) and (3); excluded from income by s.2(49)(w)(i) | Follows the accounting treatment | Not a supply |
| Turnover based state subsidy | Income under s.2(49)(w) | Included if credited to profit and loss | Excluded from value under s.15(2)(e) |
| Stamp duty exemption on land | Lower cost of land; no depreciation on land | Not credited to profit and loss | Not relevant |
| UP PLI top up (30% of central PLI) | Income under s.2(49)(w) | Included if credited to profit and loss | Excluded from value under s.15(2)(e) |

The GST view rests on two points. A PLI payment rewards output, not a service to the government. Section 15(2)(e) of the CGST Act adds to value only subsidies directly linked to price. It excludes "subsidies provided by the Central and State Government" ([CBIC GST FAQ, chapter 6, Q10](https://cbic-gst.gov.in/aces/Documents/faq-on-gst.pdf)).

MAT applies to book profit. [Section 206](https://www.incometaxindia.gov.in/w/section-206-75) starts from the statement of profit and loss and does not carve out government grants. A company on [section 200](https://www.incometaxindia.gov.in/w/section-200-77) pays 22 percent plus 10 percent surcharge and 4 percent cess. That is an effective 25.168 percent, with no MAT. See our page on [corporate tax rates](/insights/corporate-tax-rates-in-india-for-foreign-companies).

Timing needs care. A PLI incentive accrues when the company meets the year's thresholds and the claim is reasonably certain, not when cash arrives. We see companies book it on receipt and then face an accrual question at assessment. Agree the recognition policy with your auditor in the first claim year.

## How do PLI incentives interact with transfer pricing?

PLI rewards sales, including sales to group companies. A foreign parent that buys from its Indian subsidiary must still pay an arm's length price. Sections 161 to 173 of the Income Tax Act, 2025 apply. The incentive belongs to the Indian company. A parent cannot reduce its purchase price to capture the PLI without a transfer pricing case.

Three practical points follow.

1. **Related party sales count as sales.** Most guidelines measure net sales of goods manufactured in India. Check your scheme's rules on related party transactions before you route sales through group distributors.
2. **Keep the incentive out of the price.** A parent may ask for a discount equal to the PLI. The tax officer can treat that discount as a shift of profit. Document why any price change is arm's length.
3. **Report it consistently.** The incentive appears in the Indian company's accounts and its Form 48 (old Form 3CEB) segment results. See our guide on [arm's length price methods](/insights/arms-length-price-methods-in-india).

## What does a foreign manufacturer need to claim PLI or state incentives?

A foreign manufacturer needs an Indian company and an approval under the relevant scheme or policy. It also needs auditable records of investment and sales, and claims filed on time. Central and state approvals run in parallel. Each state and each ministry has its own portal, forms and verifying agency.

The core documents are:

1. Certificate of incorporation, PAN, GST registration and IEC of the Indian company.
2. FDI documents: FIRC, KYC and Form FC-GPR for the share capital.
3. The approval letter under the PLI scheme or the state policy.
4. A fixed asset register that tags each item to the scheme's definition of eligible investment.
5. Product wise sales records that reconcile to GST returns and audited accounts.
6. Chartered accountant and statutory auditor certificates in the scheme's formats.
7. A Domestic Value Addition working where the scheme sets a DVA test.

Projection reports and detailed project reports help with state approvals. Our [projection reports service](/services/valuation-reports.html) prepares them.

## What changed in 2026

| Item | Old position | New position | Date | Instrument |
|---|---|---|---|---|
| ECMS outlay | INR 22,919 crore | INR 40,000 crore | 1 Feb 2026 | Union Budget 2026-27 |
| PLI for large scale electronics | Six year tenure running to FY 2025-26 | Last scheme year, FY 2025-26, ended | 31 Mar 2026 | MeitY order of 23 Sep 2021 (set the six year tenure) |
| Income tax law on subsidies | Income Tax Act, 1961, s.2(24)(xviii) and Explanation 10 to s.43(1) | Income Tax Act, 2025, s.2(49)(w) and s.39(1)(d) and (3) | 1 Apr 2026 | Income Tax Act, 2025 |
| MAT rate | 15% | 14% | Tax year 2026-27 | Finance Act, 2026 |
| Reported PLI outlay | INR 1.97 lakh crore | INR 1.91 lakh crore in PIB releases | 20 Feb 2026 | PIB releases |
| PLI investment reported | INR 2.16 lakh crore (31 Dec 2025) | INR 2,40,138 crore (31 Mar 2026) | 21 Jul 2026 | PIB release 2287008 |

## What has happened since 26 Mar 2026

On 27 Mar 2026, the day after this page's publish date, PIB reported new disbursement figures ([PIB release 2246089](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2246089&reg=3&lang=2)). Electronics and IT hardware schemes had paid about INR 15,554 crore. The automobiles scheme had paid about INR 2,377.56 crore. The release gives no as on date for these two figures.

On 1 Apr 2026 the Income Tax Act, 2025 came into force. The subsidy rules moved from section 2(24)(xviii) to section 2(49)(w), and the actual cost rule to section 39.

On 21 Jul 2026 the government told the Lok Sabha that PLI investment had passed INR 2.40 lakh crore as on 31 Mar 2026. Employment had passed 14.15 lakh. Cumulative PLI exports had passed INR 15.2 lakh crore ([PIB release 2287008](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2287008&reg=48&lang=2)). The release mentions no new tranches or closures. It refers to rationalised guidelines and relaxed eligibility conditions in some schemes.

## Worked example

A German group sets up an Indian Private Limited company to make electronic sub assemblies. The company invests INR 400 crore in plant and machinery in Madhyanchal, Uttar Pradesh, a Mega project under the UP policy. It qualifies under an illustrative central PLI scheme that pays 5 percent of incremental sales. It opts for section 200, so its tax rate is 25.168 percent.

**Step 1. Central PLI incentive for one year**

1. Base year sales of eligible goods: INR 500 crore.
2. Current year sales of eligible goods: INR 1,700 crore.
3. Incremental sales: INR 1,700 crore − INR 500 crore = INR 1,200 crore.
4. Incentive at 5 percent: INR 1,200 crore × 5% = INR 60 crore, subject to the scheme's annual ceiling.
5. Income tax on the incentive: INR 60 crore × 25.168% = INR 15.1008 crore.
6. Net cash benefit after tax: INR 60 crore − INR 15.1008 crore = INR 44.8992 crore.

**Step 2. Compare the three UP options (Mega project, Madhyanchal)**

| UP option | Gross benefit (INR crore) | How it is paid | Income tax position |
|---|---|---|---|
| Capital subsidy at 20% of ECI | 400 × 20% = 80 over 12 years | Spread over 12 years; INR 10 crore annual ceiling | Reduces actual cost under s.39(1)(d) |
| Net SGST reimbursement | Up to 17% of ECI a year (INR 68 crore) and 200% overall (INR 800 crore) | 12 years, on SGST actually paid | Taxable under s.2(49)(w) |
| PLI top up at 30% | INR 60 crore × 30% = INR 18 crore for this year | As the central PLI is disbursed; cap 100% of ECI (INR 400 crore) | Taxable under s.2(49)(w) |

The SGST option only pays what the company deposits in net SGST. Suppose it sells mostly to customers outside UP or exports. Its sales then carry IGST or zero rating, and net SGST stays low. In that case the PLI top up or the capital subsidy is worth more. A company selling heavily inside UP may prefer the SGST option.

**Step 3. Tax effect of the capital subsidy**

Suppose the company picks the capital subsidy. If UP pays it evenly, the company receives INR 6.67 crore in year one against plant costing INR 400 crore. Section 39(1)(d) reduces the plant's actual cost by the subsidy relatable to it. Depreciation falls in later years, so the tax benefit of the subsidy arrives over the asset's life. The subsidy itself is not taxed as income in the year of receipt.

## Common mistakes

1. **Applying through the foreign parent.** PLI applicants must be companies registered in India. Fix: set up the Indian company and complete FDI reporting before the window opens.
2. **Counting ineligible investment.** Land, buildings and investment before the scheme's start date often do not count. Fix: tag each asset in the register to the guideline's definition from day one.
3. **Assuming an old PLI round is open.** Most PLI rounds closed between 2020 and 2023. Fix: target open schemes such as ECMS, or a new tranche, and model without the old PLI.
4. **Choosing the SGST option for an export plant.** Exports and out of state sales generate little SGST. Fix: model the cash under each state option with your real sales mix.
5. **Booking the incentive only on receipt.** Income accrues when the conditions are met. Fix: agree the accrual policy with the auditor and the tax adviser in year one.
6. **Treating a capital subsidy as tax free income and still depreciating full cost.** Section 39(1)(d) reduces actual cost. Fix: reduce the asset's tax cost by the subsidy relatable to it.
7. **Letting the parent take the PLI through a price cut.** This invites a transfer pricing adjustment. Fix: keep the intercompany price at arm's length and document it.
8. **Missing claim deadlines.** Each scheme sets its own claim periods and documents. Fix: build a claim calendar with the Project Management Agency's formats.

## Checklist

1. Identify the central scheme, tranche or successor scheme open for your product.
2. Read the scheme guidelines and FAQs for thresholds, base year and eligible investment.
3. Check FDI eligibility, including Press Note 3 for land border investors.
4. Incorporate the Indian company and complete FDI reporting in Form FC-GPR.
5. Compare at least two states on capital subsidy, SGST reimbursement, PLI top up and land.
6. Model each state option against your expected sales mix and SGST payments.
7. Apply under the central scheme and the state policy within their windows.
8. Set up a fixed asset register and sales records that match the scheme definitions.
9. Agree the income tax and accounting treatment of each incentive with your auditor.
10. Set the intercompany pricing policy so the incentive stays with the Indian company.
11. File claims each period with the required certificates.
12. Track disbursements, ceilings and clawback conditions every quarter.

## Key terms

- **Production Linked Incentive (PLI)**: A central government scheme that pays an eligible company registered in India a percentage of its incremental sales of goods manufactured in India over a base year. Each sector has its own guidelines, outlay, thresholds and tenure, run by the ministry concerned and monitored by an Empowered Group of Secretaries. (https://krystal7.com/glossary#production-linked-incentive)
- **Incremental sales**: Net sales of goods manufactured in India in a year, minus net sales of the same goods in the base year set by the scheme guidelines. Most PLI schemes pay their incentive only on this increase, and only if the company also meets the incremental investment threshold for that year. (https://krystal7.com/glossary#incremental-sales)
- **Domestic Value Addition (DVA)**: The share of a product's value that is added in India, measured under the method in the relevant scheme guidelines. Some PLI schemes, such as the PLI for automobiles and auto components, require a minimum DVA, set at 50 percent for advanced automotive technology products. (https://krystal7.com/glossary#domestic-value-addition)
- **SGST reimbursement**: A state incentive that refunds to an eligible manufacturer all or part of the State GST it paid in cash on sales, for a fixed number of years and within caps linked to its eligible investment. It is a subsidy under state policy, not a GST refund under the CGST Act, 2017. (https://krystal7.com/glossary#sgst-reimbursement)
- **Eligible Capital Investment (ECI)**: The investment in plant, machinery, buildings and other items that a state industrial policy counts when it sizes capital subsidies and caps. Uttar Pradesh's 2022 policy uses ECI to set capital subsidy, SGST reimbursement ceilings and the overall cap on its PLI top up. (https://krystal7.com/glossary#eligible-capital-investment)
- **Project Management Agency (PMA)**: The agency a ministry appoints to receive PLI applications and claims, check eligibility and recommend disbursement. The applicant files quarterly, half yearly or annual claims with the PMA, which verifies sales, investment and documents before the ministry releases the incentive. (https://krystal7.com/glossary#project-management-agency)

## Frequently Asked Questions

### What is the PLI scheme in India?

The PLI scheme is a set of central schemes. Each pays eligible manufacturers a percentage of incremental sales of goods made in India over a base year. It covers 14 sectors, including electronics, pharmaceuticals, automobiles, solar modules and textiles. Each ministry runs its own scheme under its own guidelines.

### How many sectors are covered under the PLI scheme?

Fourteen, according to PIB (2 Aug 2023). They are mobile phones and electronic components, bulk drugs, medical devices, automobiles and auto components, and pharmaceuticals. The rest are specialty steel, telecom products, IT hardware, white goods, food products, textiles, solar PV modules, Advanced Chemistry Cell batteries and drones.

### Can a foreign company get PLI incentives in India?

Yes, through an Indian company. The applicant must be a company registered in India, so a foreign group applies through its Indian subsidiary. Most manufacturing sectors allow 100 percent FDI under the automatic route. Investors from land border countries need government approval under Press Note 3 (2020 Series).

### How is the PLI incentive calculated?

The incentive is a set percentage of incremental sales of eligible goods over a base year. For example, the large scale electronics scheme pays 4 to 6 percent of incremental sales over FY 2019-20. The company must also meet a cumulative incremental investment target in the same year.

### How much has the government paid under PLI schemes?

As on 31 Dec 2025 the government reported INR 28,748 crore of incentives disbursed and investment above INR 2.16 lakh crore (PIB, 20 Feb 2026). By 31 Mar 2026 investment had reached INR 2,40,138 crore and employment 14.15 lakh (PIB, 21 Jul 2026).

### Is the PLI scheme still open in 2026?

Most original PLI rounds closed to new applicants between 2020 and 2023, and the electronics scheme's last year was FY 2025-26. Successor schemes are open. The Electronics Component Manufacturing Scheme, notified on 8 Apr 2025, had its outlay raised to INR 40,000 crore in Budget 2026-27.

### Is the PLI incentive taxable?

Yes. Section 2(49)(w) of the Income Tax Act, 2025 treats any government subsidy, grant, cash incentive or reimbursement as income. A PLI incentive is taxed in the year it accrues. It also forms part of book profit for MAT under section 206.

### Is GST payable on PLI incentives?

In our view, no. A PLI payment rewards output and is not consideration for a supply to the government. Section 15(2)(e) of the CGST Act, 2017 also excludes subsidies provided by the Central and State Governments from the value of supply. Keep the scheme approval and disbursement letters on file.

### How is a state capital subsidy taxed?

Under section 39(1)(d) of the Income Tax Act, 2025, a capital subsidy relatable to an asset reduces its actual cost. Section 39(3) apportions a subsidy that covers several assets. Such a subsidy is excluded from income by section 2(49)(w)(i), and the benefit comes through lower depreciation.

### What is SGST reimbursement under state industrial policy?

It is a state subsidy that refunds part or all of the State GST a manufacturer paid in cash. It runs for a fixed period within caps. Uttar Pradesh reimburses 100 percent of net SGST for 6 to 16 years. Tamil Nadu reimburses SGST on in state sales for 15 years. It is taxable income.

### Can I combine central PLI with state incentives?

Yes, in the states we reviewed. Para 12.8 of the Uttar Pradesh policy allows central incentives alongside state incentives. UP also offers a top up of 30 percent of the central PLI as one of its three options. Each state bars stacking with its own other policies, with limited exceptions.

### What stamp duty exemption do states give on industrial land?

Uttar Pradesh exempts 100 percent of stamp duty in Bundelkhand and Poorvanchal, 75 percent in Madhyanchal and Paschimanchal and 50 percent in Gautam Buddh Nagar and Ghaziabad. It asks for a bank guarantee until production starts. Tamil Nadu gives 50 or 100 percent concession in SIPCOT parks, depending on district category.

### Does the PLI incentive affect transfer pricing?

It can. The incentive belongs to the Indian company. A parent may cut its purchase price to absorb the PLI. The tax officer can treat that cut as a shift of profit under sections 161 to 173 of the Income Tax Act, 2025. Keep intercompany prices at arm's length.

### Can an SEZ unit claim PLI?

It depends on the scheme guidelines, which set their own rules on SEZ units and on sales that count. Check the eligibility clause of your sector's scheme before you choose an SEZ location. See our guide on [setting up an SEZ unit](/insights/sez-unit-setup-india-foreign-company) for the SEZ rules.

### Which state is best for a foreign manufacturer?

No state wins on every count. Uttar Pradesh links its top up to central PLI and gives larger subsidies in Bundelkhand and Poorvanchal. Tamil Nadu offers 15 years of SGST reimbursement and a turnover based route for large employers. Compare land, power, suppliers and ports alongside the incentives.

## Sources

- Ministry of Commerce and Industry (PIB), PLI schemes for 14 key sectors, 2 Aug 2023, https://www.pib.gov.in/PressReleasePage.aspx?PRID=1945155
- Ministry of Commerce and Industry (PIB), PLI scheme with INR 1.91 lakh crore outlay, 20 Feb 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2230621&reg=3&lang=1
- PIB, PLI disbursements in electronics and automobiles, release 2246089, 27 Mar 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2246089&reg=3&lang=2
- Ministry of Commerce and Industry (PIB), PLI schemes attract over INR 2.40 lakh crore investment, release 2287008, 21 Jul 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2287008&reg=48&lang=2
- Ministry of Heavy Industries (PIB), PLI scheme for automobiles and auto components, release 2290691, 28 Jul 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2290691&reg=48&lang=2
- PIB Research, PLI Scheme: Powering India's Industrial Renaissance, 24 Aug 2025, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/aug/doc2025824619301.pdf
- PIB Research, Government Scales Up PLI Budget to Accelerate Manufacturing, 3 Mar 2025, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/mar/doc202533511601.pdf
- PIB Research, Electronics Components Manufacturing Scheme, 3 Feb 2026, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/feb/doc202623777901.pdf
- MeitY, FAQs on the PLI Scheme for Large Scale Electronics Manufacturing, https://www.meity.gov.in/static/uploads/2024/02/Frequently_Asked_Questions_on_PLI_Scheme.pdf
- MeitY, Order extending the tenure of PLI for large scale electronics manufacturing, 23 Sep 2021, https://www.meity.gov.in/static/uploads/2024/02/Extension-of-tenure-of-PLI-LSEM_23.09.20211-1.pdf
- Government of Uttar Pradesh, Uttar Pradesh Industrial Investment and Employment Promotion Policy 2022, https://invest.up.gov.in/wp-content/uploads/2023/02/Uttar_Pradesh_Industrial_Investment_Employment_Promotion_Policy_2022-en.pdf
- Government of Tamil Nadu (Guidance Tamil Nadu), Tamil Nadu Industrial Policy 2021, https://storage.investingintamilnadu.com/Guidance/Uploads/Others/industrial_policy_2021.pdf
- Income Tax Department, Section 2, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-2-263
- Income Tax Department, Section 39, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-39-172
- Income Tax Department, Section 200, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-200-77
- Income Tax Department, Section 206, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-206-75
- CBIC, FAQs on GST, chapter 6 (valuation), Q10, https://cbic-gst.gov.in/aces/Documents/faq-on-gst.pdf
- Guidance Tamil Nadu, TNIP 2021 Validity Extension (notification listing), https://www.investingintamilnadu.com/business-in-tamil-nadu/policy-notifications/tnip-2021-validity-extension

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