Budget 2025: New presumptive tax scheme for non-residents in electronics

The government has introduced a new presumptive taxation regime for non-residents providing services in India’s electronics manufacturing sector. Under the proposed amendment, Section 44BBD will be added to the Income Tax Act, deeming 25 per cent of the total amount received or payable to non-residents for their services or technology as profits and gains from business. This will result in an effective tax rate of less than 10 per cent on gross receipts, making taxation simpler and more predictable for foreign entities.  Announced by Finance Minister Nirmala Sitharaman, this initiative is part of India's strategy to position itself as a global hub for electronics system design and manufacturing (ESDM). The Ministry of Electronics and Information Technology (MeitY) has already introduced schemes to develop semiconductor and display manufacturing facilities, for which non-residents will provide critical technology and support services. The new taxation scheme will take effect on April 1, 2026, applying to the assessment year 2026-27 and beyond.  "It is, therefore, proposed to insert a new section 44BBD, which deems 25 per cent 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 this business. This will result in an effective tax payable of less than 10 per cent on gross receipts by a non-resident company," the government stated in a memorandum explaining the provisions in the Finance Bill.  Sandeep Sehgal, partner, tax, AKM Global, a tax and consulting firm, said,  “The presumptive scheme under Section 44BBD has been introduced for foreign electronics manufacturers. Twenty-five per cent of their revenue from their manufacturing facility in India shall be considered as income and shall be taxed at 35 per cent. Hence, their effective tax rate will be less than 10 per cent. This measure may serve as a significant boost for the industry, helping bring technology and qualified support to India."