Setting Up an Indian Subsidiary for a US Manufacturing Company

A US manufacturer considering India may be looking at local production, assembly, sourcing, engineering support or a combination of these activities. Each model creates different decisions around investment, product approvals, location, imports, customers and group-company transactions. Start with the proposed operation and product, then choose the legal structure and compliance plan around it.

Prepared by AU Corporate's CA-led advisory team · Published 12 October 2026 · General guidance; verify the rules for the product and activity before investing.

1. Define the manufacturing model

“Manufacturing in India” can describe several different arrangements. Write down the activities the Indian entity will actually perform and the role of the US parent, suppliers, contract manufacturers and customers.

These models may be combined, but they should not be treated as equivalent. A sourcing office and a factory have different operating needs, and a contract manufacturing arrangement may place assets, employees and production risks in different entities.

2. Check foreign investment and product-specific rules

India’s foreign direct investment policy generally allows foreign investment in manufacturing under the automatic route, subject to applicable conditions. This is not a blanket clearance for every product or activity. Defence-related manufacturing, regulated goods, industrially licensed products and other special categories can have additional caps, approvals or operating conditions.

Before deciding on shareholding or sending funds, describe the product, manufacturing process, planned sales and any regulated end use. Review the current DPIIT foreign direct investment policy resources and identify any sector-specific or product-specific rules that apply. If the business includes activities beyond manufacturing, assess each activity separately.

For the general incorporation sequence, use our company registration guide for US businesses and subsidiary document checklist.

3. Compare locations and facility requirements

Choosing a state or industrial location is an operating decision as much as a company-registration decision. Compare access to suppliers, skilled employees, customers, ports and freight routes, power and utilities, industrial land or premises, and the local approval process.

• List the premises, machinery, storage, utilities and environmental controls the operation may need.
• Check zoning, land use, factory, fire, pollution-control and other approvals that may apply to the site and activity.
• Review state incentives only after confirming the current scheme, eligibility, application window and conditions.
• Budget for local professional support, hiring, safety procedures and operating records.
• Do not assume incorporation itself authorises the company to begin production at a chosen site.

Requirements vary by location, product and facility. Confirm them with the relevant authorities and local advisers before signing a long-term lease or ordering equipment.

4. Plan imports, exports and the supply chain

A manufacturing subsidiary may import machinery, components, tooling or raw materials and may export finished goods. Map each movement of goods before launch: the buyer, seller, importer or exporter, owner of the goods, customs classification, valuation, shipping terms and payment route.

An Importer Exporter Code (IEC) may be required for import or export activity, subject to current rules and exemptions. Check the Directorate General of Foreign Trade (DGFT) guidance for the proposed transactions. Product standards, labelling, customs duties, trade remedies and licences may also apply depending on the goods.

Where the US parent supplies machinery, components, technical know-how or services to the Indian subsidiary, document the commercial terms and retain the supporting invoices and valuation records. Related-party transactions may require separate tax and transfer-pricing review.

5. Map tax, GST and intercompany transactions

The tax and compliance position depends on what the Indian entity does and how it interacts with the wider group. Consider corporate tax, GST, customs, payroll and withholding, as well as any applicable company-law and foreign-investment reporting.

Identify cross-border transactions early, including:

• Machinery, components, raw materials or finished goods bought from or sold to group companies.
• Technical, engineering, quality-control, management or support services.
• Royalties or licences for patents, designs, trademarks, software or other intellectual property.
• Intercompany loans, guarantees, shared costs and other financial arrangements.

For related-party dealings, review the actual functions, assets and risks of each entity and document the pricing method and supporting evidence. Do not rely on a standard markup without assessing whether it fits the transaction. See our transfer-pricing guide for US parents and Indian subsidiaries.

6. Protect intellectual property and production know-how

Before sharing drawings, source files, formulas, tooling designs or confidential manufacturing processes, decide which company owns the existing IP and any improvements created in India. Use suitable confidentiality, employment, supplier and licence terms, and limit access to what each party needs.

Also review quality standards, product liability, warranties, rejected goods, tooling ownership, audit rights and what happens to materials and IP if a supplier relationship ends. The contracts should reflect who actually controls production and who bears the relevant commercial risks.

7. Build the post-incorporation checklist

Incorporation does not complete the launch. The company may still need to establish banking and capital records, obtain applicable registrations and site approvals, hire employees, set up payroll and accounting, document intercompany transactions and build a calendar for recurring filings.

• Confirm the registered office, board and shareholding records.
• Plan funding, bank onboarding, share allotment records and foreign-investment reporting where applicable.
• Set up accounting, GST and tax processes appropriate to the transactions.
• Confirm employee, contractor, workplace and safety requirements.
• Assign an owner and review date to each recurring compliance obligation.

Our post-incorporation compliance checklist is a useful companion. For a broader manufacturing strategy, review current government resources and confirm the position for the exact product and location.

Questions to settle before committing capital

Before choosing a structure or site, prepare answers to these questions:

• What product will be made, assembled, imported or sold, and are any special licences required?
• Will the Indian entity manufacture itself, use a contract manufacturer or focus on sourcing and distribution?
• What FDI cap, entry route and investor-specific conditions apply?
• Which entity will own the equipment, inventory, tooling, product IP and customer contracts?
• How will group-company purchases, services, royalties and funding be documented and priced?
• What approvals, registrations and recurring filings are needed before and after production begins?

Plan the India setup around the real operation

A manufacturing project needs a joined-up view of incorporation, investment rules, site readiness, supply chain, tax and ongoing compliance. The right sequence depends on the product and operating model. AU Corporate can help assess the India-side incorporation and compliance work with your US team and other specialist advisers.

For a broader starting point, visit our India entry guide for US companies or review the cost and timeline guide.