Presumptive tax regime likely to woo global talent into electronics

Govt proposes only 25% of total remuneration received by expats to be treated as taxable profits

The government’s budgetary proposal for a new presumptive taxation regime for non-Indian residents providing services to electronics manufacturing companies operating in India is likely to help these companies attract top global talent easily, government sources have said.

 

“This has been a long-standing demand. Although semiconductor and electronics manufacturing companies currently employ a handful of foreign nationals, manufacturing in both sectors are now moving into their next phase, where the number of foreign nationals working directly or employed to train Indian nationals will increase manifold,” a government official said.

 

By fostering a more predictable tax environment, these measures are expected to attract greater foreign participation, streamline operations, and enable the sector to access top global talent, said Kunal Chaudhary, tax partner at EY India.

 

Under the new presumptive regime, which will take effect on April 1, the government has proposed that only 25 per cent of the total remuneration received by non-residents will be treated as taxable profits. This, in turn, will mean that a majority of non-residents who stay in India for extended periods will pay an effective tax of less than 10 per cent on their gross income, experts said.

 

“This measure may serve as a significant boost for the industry, and help bring technology and qualified support to India. Furthermore, the proposal to exclude activities that are confined to the purchase of goods for export purposes from the definition of ‘significant economic presence’ is another step towards greater certainty for non-residents,” said Rajarshi Dasgupta, executive director of Tax Practice at law firm AQUILAW.

 

Another budgetary proposal introduces a safe harbour provision for non-residents who store components intended for specified electronics manufacturing units. This will support the expansion of warehousing facilities, particularly for semiconductor and electronics manufacturing companies, said the official quoted above.

 

Electronics and semiconductor manufacturing companies in countries/regions, such as Malaysia, Taiwan, Japan, and South Korea, maintain vast warehouses where all components and inputs required for manufacturing are stored after arriving as finished products from their respective factories.

 

When needed, these components are collected by the manufacturers, while other raw materials are shipped to different locations, the official explained.

 

“Safe harbour rules provide taxpayers with predefined conditions under which their transactions will not be challenged by tax authorities, thereby reducing disputes and fostering compliance,” Dasgupta said.