Presumptive Taxation Scheme for Non-Residents Supporting Electronics Manufacturing in India: Section 44BBD (Finance Act, 2025)
India is fast emerging as a global hub for electronics manufacturing. To further this mission, the Finance Act, 2025 has introduced an important facilitative amendment — the insertion of a new presumptive taxation scheme under Section 44BBD, specifically aimed at non-residents providing services or technology to India’s electronics manufacturing sector.
Background
India’s ambition to become a global Electronics System Design and Manufacturing (ESDM) leader has seen major government initiatives, such as the Semiconductor and Display Manufacturing Ecosystem program, led by the Ministry of Electronics and Information Technology (MeitY).
Foreign expertise is crucial in setting up these high-technology facilities. Recognizing the need for ease and certainty in taxing non-resident participants, the government has proposed a simplified presumptive taxation regime.
Earlier Position
Before this amendment, non-residents providing technical or support services for setting up manufacturing facilities were subject to normal taxation under the Income-tax Act, 1961:
- Profits were computed under regular provisions (Sections 28 to 43A).
- They were required to maintain books of accounts and undergo complicated assessments.
- Taxability was uncertain, leading to possible disputes over the quantum of income attributable to India.
This posed a challenge to the goal of seamless, rapid development of the electronics ecosystem.
Key Highlights of the New Provision (Section 44BBD)
| Aspect | Details |
| Applicability | Non-resident engaged in providing services or technology in India to eligible Indian companies. for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India– |
| Eligible Indian Company | Indian company that is establishing or operating an electronics manufacturing facility, or a connected facility, under a scheme notified by Ministry of Electronics and Information Technology [MeitY] and satisfying prescribed conditions.
No Presumptive Scheme Without Notification: The facility must be covered under a MeitY-notified scheme. General contracts for unrelated services are not eligible. |
| Deemed Income | 25% of the total specified receipts will be deemed as profits and gains of business. |
| Specified Receipts | Total amount received/receivable by, or paid/payable to, the non-resident for providing services or technology. |
| Effective Tax Rate | Less than 10% on gross receipts (after applying Indian corporate tax rates on deemed income). |
| No Deductions Allowed | No further deductions for expenses, depreciation, etc. |
| No Set-off | No set-off of brought forward business losses (Sec 72(1)) or unabsorbed depreciation (Sec 32(2)) allowed against presumptive income. |
| Overriding Effect | Overrides Sections 28 to 43A — normal income computation provisions will not apply. |
| Effective Date | w.e.f 01/04/2026 From AY 2026-27 onwards (i.e., FY 2025-26). |
Note: Supplementary FAQ 2 Q2 clarifies that provisions of Sec 44DA , 115A shall not apply to income covered u/s 44BBD (all FAQ’s reproduced at the end of this article)
Example: Suppose a non-resident technology company enters into an agreement with an Indian resident company setting up a semiconductor fab under a MeitY-notified scheme:
- Gross Receipts: INR 100 crore.
- Deemed Profits = 25% of 100 crore = INR 25 crore.
- Tax Payable (assuming 35% corporate tax rate for foreign companies) = 35% × 25 crore = INR 8.75 crore.
- Effective tax rate on gross receipts = 10 crore / 100 crore = 10%.
However, if DTAA benefits apply (lower withholding rates), actual tax could be even lower.
Strategic Impact
- For India: Attracts greater foreign technology investment and boosts manufacturing competitiveness.
- For Non-Residents: Predictable, low-cost, and simple taxation model encourages participation.
- For Industry: May lead to faster development of facilities like fabs, display manufacturing plants, electronics hubs.
Potential Concerns and Open Issues
- High Deemed Profit Margin: Some players might find 25% profit assumption too aggressive if their actual margins are lower.
- Withholding Tax (TDS): Indian companies may still need to deduct appropriate TDS on payments to non-residents.
Conclusion
Section 44BBD is a welcome move that simplifies taxation for non-resident technology and service providers working in India’s critical electronics manufacturing sector. By balancing ease of doing business with reasonable tax collection, this measure supports India’s ambition to be a global manufacturing powerhouse in semiconductors and electronics.
Foreign companies and their tax advisors should, however, carefully evaluate the eligibility criteria, conditions prescribed in the rules, and the interplay with DTAAs to optimize tax outcomes.
FAQ’s on Finance Bill 2025
FAQ: 9-Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility:
Q1 What is the benefit given by Finance Bill 2025 to non-residents engaged in the business of providing services or technology to a resident company which is engaged in electronics manufacturing facility including semi-conductor fabrication in India?
Ans. A presumptive taxation regime for such non-residents has been provided.
Q2 What was the scheme of taxation in respect of such activity/such persons prior to Finance Bill, 2025?
Ans. Prior to the proposed amendment, a non-resident or a foreign company was liable to tax as business income on the profits from this activity at the applicable rates. There was no separate scheme for presumptive taxation for such activity/person.
Q3 What is presumptive taxation regime?
Ans. Presumptive taxation is a simplified method of calculating taxes for eligible taxpayers. The main motive is to bring tax certainty to certain specified businesses. This reduces compliance costs and promotes ease of doing business. The profits of the business are deemed to be certain percentage of sales/turnover or receipts.
Q4 What are the main provisions of section 44BBD introduced in Finance Bill 2025?
Ans. As per new section 44BBD, 25% of the aggregate amount received/ receivable by, or paid/ payable to, the non-resident, on account of provision of services or technology, are deemed as profits and gains of such non-resident from this business.
Q5 When the provisions of section 44BBD are going to be effective?
Ans. This amendment will take effect from the 01.04.2026 and will, accordingly, apply to the assessment year 2026-27 onwards. The amendment therefore applies to transactions undertaken in financial year 2025-26.
Q6 Which companies will benefit from this change?
Ans. The provision directly applies to non-resident companies which are offering services or technology to electronic Manufacturing industry in India. The certainty provided in terms of taxation to such companies will promote development of manufacturing Industry in India in the electronics sector.
Q7 Will the scheme be applicable where technical personnel are provided by such non-resident?
Ans. Yes. This presumptive scheme of taxation is applicable to non-resident providing services or technology. Therefore, where technical personnel are provided by the non-resident, it will be part of presumptive scheme.
Supplementary FAQ.2: Amendment of Proposed Section 44BBD of the Income-tax Act, 1961
Q.1. What are the provisions of section 44BBD of the Income-tax Act, 1961 as proposed in the Finance Bill, 2025?
Ans. The proposed section 44BBD inter alia provides presumptive taxation for non- residents engaged in the business of providing technology and services for an electronics manufacturing facility to a resident company. The said section deems twenty-five percent of the aggregate amount received/receivable by, or paid/payable to, the non-resident, on account of providing services or technology, as profits and gains of such non-resident from such business.
Q.2. What amendment has been proposed in the Finance Bill, 2025 through Government Amendment in respect of section 44BBD?
Ans. An amendment has been proposed in section 44BBD to further clarify that the specific sections related to permanent establishment and taxation of royalty and fee for technical services (Section 44DA and Section 115A) shall not apply on the income included in the proposed presumptive taxation scheme under section 44BBD.
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