Unlocking Growth: Comprehensive Guide to MSME Subsidies in Karnataka under the Industrial Policy 2025-30

Karnataka’s Industrial Policy 2025-30 sets a forward-thinking agenda for fostering the growth of micro, small, and medium enterprises (MSMEs) in the state. By providing a range of subsidies and incentives, the policy aims to elevate Karnataka’s position as a top destination for new and existing enterprises. Below is a comprehensive guide to the available subsidies, eligibility criteria, and notable sector-specific provisions.

Eligible Enterprise Categories

Under the Karnataka Industrial Policy 2025-30, eligibility for subsidies is defined by the value of investment in plant and machinery:

 Category-wise Investment Limits in Plant & Machinery

• Micro: Up to INR 1 crore

• Small: More than INR 1 crore, up to INR 10 crores

• Medium: More than INR 10 crores, up to INR 50 crores

• Large: More than INR 50 crores, up to INR 300 crores

• Mega: More than INR 300 crores, up to INR 1000 crores

• Ultra Mega: Above INR 1000 crores

MSME subsidies are primarily targeted at micro, small, and medium enterprises, but large, mega, and ultra-mega enterprises also benefit from specific schemes if they surpass higher investment thresholds or increase their existing fixed assets by at least 25% through expansion or modernization. Eligible business structures include proprietorships, partnerships, private and public limited companies, LLPs, and co-operative societies

Capital Subsidy — Now Up to ₹1 Crore for SMEs if opted for the One Time Payment

A core component of the policy is the capital subsidy provided to MSMEs for investment in fixed assets such as land, buildings, machinery, and essential equipment.

Capital subsidy structure:

Zone 1

• Micro Enterprises: 30% of VFA (max ₹30 lakh)

• Small & Medium Enterprises: 20% of VFA (max ₹1 crore)

• Special Categories (Women, SC/ST, Minority, etc.): 35% of VFA (subject to limits)

Zone 2

• Micro Enterprises: 25% of VFA (max ₹25 lakh)

• Small & Medium Enterprises: 15% of VFA (max ₹80 lakh)

• Special Categories (Women, SC/ST, Minority, etc.): 30% of VFA (subject to limits)

Zone 3

• Micro Enterprises: 10% of VFA (max ₹10 lakh)

• Small & Medium Enterprises: 10% of VFA (max ₹40 lakh)

• Special Categories (Women, SC/ST, Minority, etc.): 15% of VFA (subject to limits)

  VFA: Value of Fixed Assets, which includes capital expenditure on land, buildings, equipment, and machinery.

  Special Categories: Higher incentives are available for enterprises led by SC/ST, women, minorities, persons with disabilities, and ex-servicemen.

Significantly, the ceiling for small and medium enterprises now reaches up to ₹1 crore, strengthening support for substantial new investments and expansions.

Performance-Linked Incentive (PLI): 2.5% of Monthly Net Sales

Recognizing diverse capital requirements and operational realities, the latest policy introduces an innovative performance-linked incentive wherein eligible MSMEs may elect to receive a reimbursement of up to 2.5% of monthly net sales turnover:

• Tenure: Up to 7 years from commencement of commercial production.

• Zone-based reimbursement ceilings:

  • Zone 1: 2.5% (maximum 60% of VFA)

  • Zone 2: 2.0% (maximum 60% of VFA)

  • Zone 3: 1.0% (maximum 30% of VFA)

• MSMEs must opt for either the capital subsidy or the sales-linked PLI not both for the same investment.

This flexibility empowers enterprises to match state support to their unique growth trajectories, favoring both up-front investment and robust sales performance during the initial years of operation.

Sector-Specific Subsidies

Logistics and Cold Storage

• Cold Storage Facilities: The policy gives industry status to logistics and warehousing, including cold storage. Eligible enterprises can receive up to 20% capital subsidy for investments in cold chains, infrastructure, and storage projects, crucial for agri-businesses and perishable goods industries.

Recycling, Green, and Sustainability Projects

• Recycling Facilities: Up to 50% subsidy (capped at ₹5 crore) for projects focusing on recycling, including plastic, e-waste, and biomedical waste, as well as zero liquid discharge initiatives.

Innovation & R&D

• R&D Centers: Exclusive R&D centers established for industrial innovation by MSMEs are eligible for a subsidy up to 50% of equipment and machinery costs, promoting scientific research and competitiveness.

Other Key Benefits

• 100% exemption on stamp duty and concessional registration fees (benefits highest in industrially backward zones).

• Electricity tax exemption for 5–7 years depending on location.

• Reimbursement of land conversion fees in select cases.

• Incentives for cluster development and Industry 5.0 adoption.

Application Process & Compliance

• Submit a formal application with supporting documents through state government portals.

• Certified evidence of investments and/or sales data must accompany the application.

• Maintain subsidized assets for a stipulated period and comply with local employment benchmarks to avoid subsidy clawback.

Conclusion

Karnataka’s Industrial Policy 2025-30 ushers in a new era of MSME empowerment, combining substantial capital subsidies (now up to ₹1 crore for small and medium enterprises) with a dynamic, production-linked sales reimbursement option. Sector-focused incentives further encourage growth in logistics, cold storage, recycling, and research-led innovation. These comprehensive measures bolster Karnataka’s MSME ecosystem, promoting inclusive and regionally balanced industrial growth.