A draft bill to regulate surrogacy has been sent to states for comments since health is a state subject.
Surrogacy will be allowed only for Indian couples and not foreigners, the government said in an affidavit in the Supreme Court today.
"The government does not support commercial surrogacy," said the Centre, adding: "No foreigners can avail surrogacy services in India."
The government also said the import of embryo for commercial surrogacy should be banned except for research purposes.
A penalty on couples refusing to take custody of a surrogate child born with disabilities has also been proposed.
A draft bill to regulate surrogacy has been sent to states for comments since health is a state subject. A comprehensive legal framework will be enforced to protect the rights of surrogate mothers and to penalise commercial surrogacy, the government told the court.
Who will have rights as parents on a surrogate child will be settled in consultation with states.
Thousands of childless couples, many from overseas, hire the services of local women who carry their embryos through to birth.
The petition in Supreme Court tries to settle a growing debate about whether the unregulated business exploits poor women.
The court earlier this month ordered the government to spell out measures for regulating the industry after expressing concern, while hearing the petition which seeks a halt to the importation of human embryos for commercial purposes.
The Supreme Court will take up the case again on November 24.