Ms. Prachi Parekh and Mr. Shrenik Suchanti (Chartered Accountants) analyse the proposal to insert a new section 44BBD (effective from Ay 2026-27) which is a presumptive tax scheme for non-residents entities engaged in the above business. They elucidate that, as per this section, 25% of the aggregate amount received / receivable by, or paid / payable to the non-resident shall be deemed as profits of the non-resident from this business. Stating that the proposed section, in contrast to the other presumptive schemes available for non-residents appears to be wider in applicability, the authors sign off by mentioning that “…the amendment seems to be the government’s genuine attempt in enabling ease of business and providing certainty and clarity to non-residents from a taxation perspective – and will meet that end when reciprocated by the tax administration in its implementation.”

“Tax Sops of ‘Certainty’ for Non-residents to Aid MEITY’s Initiatives: Section 44BBD”

Taxability of income earned by non-residents is inherently a complex subject on unsteady hinges. It is therefore a continuous endeavor of the Government to introduce measures which encourage FDI and promote investor confidence, including those from the taxation perspective. The Government’s intent to facilitate foreign investment both in monetary and technological support is patented with India being poised to be a global hub for technology, electronics system design and manufacturing. The focal point of our analysis today is tax sops proposed for non-resident enterprises providing services and technology for setting up of an electronic manufacturing facility.

To contextualize, The Ministry of Electronics & Information Technology (MEITY) recently launched a comprehensive program for the development of semiconductors and display manufacturing ecosystems with an approved spend of over USD 10 billion. The semiconductor technology is used in a wide range of electronic devices ranging from consumer electronics such as laptops, mobiles, refrigerators to electric vehicles to air conditioning systems. The emerging demand for this technology and the Government’s vision and initiatives to foster India’s growth as a manufacturing hub for electronics is reciprocated with major investment proposals from global players. Illustratively, a leading conglomerate has partnered with an Israeli partner to set up a chip manufacturing plant in Maharashtra with a proposed investment approximating to USD 10 billion.[i]

The Finance Bill 2025 extends its benevolence to these initiatives by proposing special provisions for computing profits and gains of non-residents engaged in the business of providing services or technology for setting up an electronic manufacturing facility.

A new section 44BBD is proposed to be introduced effective from assessment year (AY) 2026-27. It is a presumptive tax scheme for non-residents entities engaged in the above business. As per this section, 25% of the aggregate amount received / receivable by, or paid / payable to the non-resident shall be deemed as profits of the non-resident from this business.

The explanatory memorandum[ii] to the Finance Bill 2025 rationalizes certainty of business and promotion of this industry as the reasoning for introducing these provisions.

Non-residents engaged in the business of providing services or technology in India for setting up an electronic manufacturing facility, or in connection with manufacturing or producing electronic goods, article or thing in India can avail the presumptive taxation scheme. Such services or technology is provided to a resident company, which is establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India under a scheme notified by MEITY.

The resident company (service recipient) is required to comply with certain conditions to be prescribed.

Further, where the non-resident declares income under the presumptive scheme for any previous year, no set-off of unabsorbed depreciation and brought forward loss shall be allowed for such previous year.

Analysis & Implications

It is imperative to note that the non-resident would be to avail the presumptive tax scheme upon fulfillment of certain specified conditions by the resident company. While the aforementioned conditions will be prescribed in due course, assuming that the resident company fails in compliance for a previous year, as a consequence, the non-resident would not be able to avail the presumptive tax scheme for that year. Considering this scenario, it appears that a non-resident’s eligibility to declare income under the proposed presumptive scheme might change for consecutive years. Presently, the proposed section does not include a restriction such as in Section 44AD(4) wherein once a taxpayer opts out of the presumptive scheme, the same cannot be availed for five consecutive assessment years.

Under the present construct of the Income-tax Act, non-resident entities can offer their income to tax in accordance with the provisions under Chapter XII, XIIA viz., Section 115A,115D; or as per the provisions of Chapter IV-D – profits and gains of business or profession. Further, under the business income chapter, taxpayers may opt for special provisions on fulfilling eligibility criteria [Sections 44BBA, 44BBC and proposed Section 44BBD] or offer income under normal computational provisions. In cases where taxpayers opt for presumptive schemes, the other computational provisions for allowance and disallowance of expenditures etc. are not applicable.

The proposed section, in contrast to the other presumptive schemes available for non-residents appears to be wider in applicability. Accordingly, from the non-residents’ perspective, offering income under the proposed provisions is likely to offer certainty as regards characterization of income (as business income) and the tax rates. The rate of 25% of aggregate amount as proposed is likely to result in an effective tax payout of 10 % or less on the gross receipts. The clarity afforded by the proposed provisions is likely to mitigate issues related to constitution / existence of PE, characterization of income and attribution to such PE/ business connection. The proposed amendment is thus a welcome addition and is likely to offer a structured assurance on the tax outflows to the target non-residents.

Having deliberated on the context, amendment and possible implications, a couple of aspects need to be highlighted:

The provisions ought to factor in definitions for ‘technology’ and ‘services’ – preferably by introducing Section specific exhaustive definitions.

The proposed provisions restrict the claim for unabsorbed depreciation and brought forward loss when opting for the presumptive scheme. Considering that it may be possible that in a consecutive year the non-resident may not be eligible to avail the scheme and thus eligible for setoff, the return forms applicable in this case could contain a mechanism for structured disclosure of amounts eligible for carry forward on year-on year basis.

The influence of technology in almost all spheres of our everyday life is undeniably rising and the demand for semiconductors and chips, given their wide range of use, is also set to rise. The increased influence of artificial intelligence will further add to its demand, since these chips provide the hardware for complex calculations related to AI.

All in all, with global players collaborating and providing support to inhouse manufacturing activity will give a much-needed impetus to India’s growth process in this zone.

On a closing note, the amendment seems to be the government’s genuine attempt in enabling ease of business and providing certainty and clarity to non-residents from a taxation perspective – and will meet that end when reciprocated by the tax administration in its implementation.