How to add a separate AC line reactor / DC choke in case the variable frequency drive doesn’t have it? Can we use a separate line reactor if it’s not built in with the VFD drive? What all parameters I would have to look into, if I want to add the line reactor? Is there any sizing criteria? How would I have to install it?

It depends on how much THD you want to have and how much money you want to spend. If this is for electric motor protection there are additional methods of spike suppression and better reactors/filters.

Size for amps and voltage.

THD will vary will design and specifications. You want the reactor to filter or tune out the unwanted frequencies, mainly the AC drive carrier frequency. One often overlooked parameter is what rejection frequency the reactor is wound for. You want a reactor wound for the rejection frequency you have your VFD drive set at.

This will make you want to raise the carrier frequency to make the reactor smaller, less turns, and less expensive. Before you do this look at the de-rating tables and other factors involved with a high carrier frequency.

It’s always best to first check with your VFD installation and operation documentation. It is likely that the motor drives manufacturer makes recommendations for reactor ratings. That said 3 to 5% reactance at the VFD drive’s rated input current is always a good solution. If there is no internal bus choke or reactor in the VFD then use 5%. Don’t sweat the voltage drop. The drop is in quadrature to the source voltage and so mostly subtracts at a 90 degree angle. Thus, the drop will be less than half the %reactance.