Special provision for computing profits and gains of non-residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India. [ Section 44BBD ] - International Taxation - Income Tax

Special provision for computing profits and gains of non-residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India. [ Section 44BBD ] [ W.e.f. 01.04.2026 Inserted vide Section 11 of the Finance Act, 2025 ] Applicability and Scope [ Section 44BBD(1) ] Section 44BBD commences with a **non-obstante clause** ( Notwithstanding anything to the contrary contained in sections 28 to 43A ), giving it overriding effect over the general computation provisions for business income. Section 44BBD applies to an assessee who is a Non-resident (i.e. defined u/s 2(30), Engaged in the business of providing services or technology in India, For the purpose of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India, To a resident company which is establishing or operating an electronics manufacturing facility or connected facility for manufacturing or producing electronic goods, article or thing in India under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology**, Where the **resident company satisfies prescribed conditions**. The provision is thus targeted and does not apply to all non-residents or all kinds of services/technology transfers. The transaction must be with a resident company participating in a government-notified scheme, ensuring that the benefit is limited to bona fide cases aligned with policy objectives. Computation of income Mechanism [ Section 44BBD(1) ] Section 44BBD(1) prescribes a presumptive basis for computing the profits and gains of the non-resident. Twenty-five percent of the aggregate of the amounts specified in sub-section (2) will be deemed to be the profits and gains of such business, chargeable under the head Profits and gains of business or profession . This means that, irrespective of the actual profit margin, 25% of the gross receipts (as defined) is treated as taxable income in India. Definition of Amounts [ Section 44BBD(2) ] Sub-section (2) defines the amounts on which the 25% presumptive rate is to be applied: (a) The amount paid or payable to the non-resident assessee or to any person on his behalf on account of providing services or technology; and (b) The amount received or deemed to be received by the non-resident assessee or on his behalf on account of providing services or technology. This broad formulation ensures that both actual and constructive receipts, as well as payments made to agents or intermediaries, are covered. The provision also contains a proviso that Sections 44DA and 115A shall not apply in respect of these amounts. Because Sections 44DA and 115A deal with taxation of royalties and fees for technical services (FTS) received by non-residents, often at concessional rates or with different computational rules. By excluding these sections, Section 44BBD creates a standalone regime for the specified transactions. Introduces a significant restriction [ Section 44BBD(3) ] Where a non-resident assessee declares profits and gains under sub-section (1) for any previous year, no set-off of unabsorbed depreciation and brought forward loss shall be allowed for such previous year. This ensures that the presumptive income is taxed on a gross basis, without being eroded by past losses or depreciation, thereby simplifying assessment and preventing potential tax planning or manipulation. Important Points to be considered Potential Issues and Ambiguities identified under this section The section does not define services or technology, which may lead to interpretational issues. For instance, whether routine management services or only high-value technical services are covered may be debated. The phrase connected facility is not defined, which could raise questions about the inclusion of ancillary or support facilities. The inclusion of both paid/payable and received/deemed to be received may lead to timing mismatches or double counting if not clarified by rules. Section 44BBD is a domestic law provision. Non-residents may still be eligible to claim the benefit of a more favorable provision in an applicable Double Taxation Avoidance Agreement (DTAA) u/s 90(2). However, the interplay between the presumptive regime and treaty provisions (especially relating to Permanent Establishment and attribution of profits) may require clarification. The appropriate TDS rate for payments covered u/s 44BBD may need to be notified. In the absence of clarification, there may be practical difficulties for resident payers. The section refers to conditions to be prescribed for resident companies. The nature and stringency of these conditions will determine the practical reach of the provision.