Presumptive Tax Scheme for Non-Residents

Introduction

To enhance tax clarity and support the growth of the electronics manufacturing sector, the government has introduced a new presumptive taxation scheme under Section 44BBD of the Income Tax Act, 1961. This scheme is specifically designed for non-resident companies providing services or technology within India, particularly in connection with establishing or operating electronics manufacturing facilities. The initiative aims to simplify tax compliance for foreign entities and encourage greater foreign participation in India’s expanding electronics industry. In this article, we’ll explore the key features and implications of the New Presumptive Taxation Scheme for Non-Residents.

Understanding Presumptive Taxation

Presumptive taxation is a simplified tax regime where income is calculated as a fixed percentage of gross receipts or turnover. This approach eliminates the need for detailed bookkeeping and actual profit computation, making tax compliance easier—especially for small businesses and professionals.

Under the Income Tax Act, 1961, several presumptive tax schemes already exist:

Section 44AD – For small businesses
Section 44ADA – For professionals
Section 44AE – For transport businesses

New Addition: Section 44BBD

In the Union Budget 2025, the government has proposed a new presumptive tax scheme under Section 44BBD, targeting non-residents involved in electronics manufacturing and services in India

Government Push for Electronics Manufacturing

India has rolled out multiple initiatives to develop a robust electronics manufacturing ecosystem, including financial incentives and customs duty exemptions. The latest tax amendment is part of this broader effort to establish India as a global hub for Electronics System Design and Manufacturing (ESDM)

Section 44BBD: New Presumptive Tax Scheme for Non-Residents

The Union Budget 2025 has proposed a new presumptive taxation scheme under Section 44BBD of the Income Tax Act, 1961. This initiative is designed to offer tax certainty for non-residents involved in India’s electronics manufacturing sector. By introducing a streamlined and predictable tax framework, the government aims to attract and facilitate foreign investment in establishing and operating electronics manufacturing facilities across the country.

Objective of the Scheme

The primary goal of the proposed presumptive taxation scheme under Section 44BBD is to advance India’s ambition of becoming a global leader in Electronics System Design and Manufacturing (ESDM). By simplifying tax compliance for non-residents, the scheme aims to foster greater international collaboration and investment in the country’s electronics manufacturing ecosystem

Who Will Benefit from the New Presumptive Tax Scheme?

The proposed Section 44BBD is designed to benefit non-resident entities that supply services or technology to resident companies involved in electronics manufacturing in India. These entities will gain from a simplified tax structure and greater certainty in their tax obligations.

Applicability of the New Presumptive Tax Scheme

Section 44BBD applies to non-resident entities engaged in providing services or technology in India.

To qualify, the services must be directly related to:

Establishing an electronics manufacturing facility, or
Manufacturing or producing electronic goods, components, or related products within India

Eligibility Criteria for the New Presumptive Tax Scheme

For the presumptive taxation scheme under Section 44BBD to be applicable, the following conditions must be fulfilled:

The non-resident must provide services to a resident company that is:
- Establishing or operating an electronics manufacturing facility or a related facility.
- Operating under a scheme notified by the Central Government, specifically through the Ministry of Electronics and Information Technology.
The resident company must also satisfy the prescribed criteria to be eligible to receive services under this scheme

Presumptive Taxation Basis

Under the scheme, 25% of the total amount received or receivable by the non-resident for providing services or technology will be treated as taxable income.

This includes:

Payments made directly to the non-resident or to any person on their behalf.
Amounts received or deemed to be received by the non-resident related to these services

Restrictions on Set-Off of Losses

Non-residents opting for this presumptive taxation scheme cannot set off unabsorbed depreciation or carry forward business losses against their presumptive income. Specifically, they are not allowed to claim set-off for:

Unabsorbed depreciation under Section 32(2)
Brought forward business losses under Section 72(1)

As a result, even if a non-resident incurs losses or reports lower profits, tax will still be levied on 25% of their gross receipts, providing a clear and predictable tax outcome

Effective Tax Rate Under the New Presumptive Taxation Scheme

Under the proposed Section 44BBD, 25% of the total amount received by the non-resident for providing services will be considered taxable income. Consequently, the effective tax liability for non-residents under this scheme will be less than 10% of their gross receipts, offering a simplified and predictable tax structure

Effective Date

The amendment will take effect from April 1, 2026, applying to the Assessment Year 2026-27 and subsequent years. This means the new presumptive taxation provisions will impact income earned by non-residents from the Financial Year 2025-26 onward.

New Presumptive Tax Scheme for Non-Residents: Optional or Mandatory?

The proposed Section 44BBD mandates that all non-residents falling within its scope must pay tax based on the deemed income. Unlike other presumptive tax schemes (such as Section 44AD for businesses and Section 44ADA for professionals), non-residents under this provision do not have the option to be taxed under the regular income tax rules.

This mandatory nature may pose challenges for non-residents who incur losses or report lower net income, as they will still be taxed on 25% of their gross receipts. This could result in a higher tax burden compared to standard taxation methods.

To address this, non-resident service providers might explore relief under tax treaties. Under Article 7 of most Double Taxation Avoidance Agreements, business income is usually taxed on a net income basis, allowing non-residents to be taxed on actual profits rather than on a deemed percentage of gross receipts. This can provide important tax relief when actual profits are lower than the presumptive income calculated under the new scheme

About the Author

Priya

Priya is a skilled writer known for simplifying complex legal concepts into clear, practical guidance. Her work empowers entrepreneurs by equipping them with the essential knowledge to understand and navigate business laws, helping them confidently start and manage their ventures

June 25, 2025