Component warehousing safe harbour to offer competitive tax outcome

The proposed safe harbour regime for component warehousing linked to manufacturing may offer multinationals a globally competitive tax outcome and greater certainty on transfer pricing

The new safe harbour regime proposed for component warehousing linked to manufacturing is expected to offer multinational companies a globally competitive tax outcome along with much higher certainty on transfer pricing and audit exposure, finance ministry sources said. 

Under the Budget proposal, the safe harbour margin has been proposed at 2 per cent, which would translate into an effective tax incidence of roughly 0.7 per cent. According to the sources, the proposal is attractive because it delivers a tax outcome that can be lower than the around 1 per cent effective tax often cited for Vietnam and similar manufacturing hubs.

 

 

The sources said the key advantage of the proposal is the certainty it offers. Unlike low-tax jurisdictions where benefits can be conditional on incentives, substance tests, or periodic renegotiations, a codified safe harbour typically reduces litigation risk, compliance friction, and time to decision for multinational supply chains.

 

This certainty matters for manufacturers because warehousing and parts staging is a high-volume, low-margin function. As a result, predictable low taxation combined with fewer disputes can be more valuable than a headline incentive, the sources said.

 

According to officials, the safe harbour framework could help companies achieve a comparable — or better — post-tax cost position in India with lower regulatory risk, making the overall proposition stronger than jurisdictions that may offer a marginally lower effective rate but with greater uncertainty.

 

The proposal is expected to support India’s broader manufacturing strategy by encouraging global manufacturers to locate component hubs and warehousing functions in India as part of their supply chain restructuring plans.