Sec 44BBD: A new presumptive tax regime

Introduction:

The Finance Bill, 2025, introduced Section 44BBD to the Income-tax Act, 1961, establishing a presumptive taxation regime aimed at simplifying tax compliance for non-resident entities providing services or technology to India’s electronics manufacturing sector.  

Intricacies:

1. Targeted Non-Residents: This provision applies to non-resident companies engaged in delivering services or technology to resident companies that are either establishing or operating electronics manufacturing facilities in India. 

2. Notified scheme: These facilities must operate under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology and meet prescribed conditions.  

3. No deductions: Non-residents opting for taxation under Section 44BBD are not permitted to claim deductions for unabsorbed depreciation or carry forward losses.

Proposed amendment:

1. A significant amendment clarifies that income assessed under Section 44BBD will not be subject to additional taxation under Sections 44DA or 115A of the Income Tax Act. 

2. Sec 44DA:

Sec 44DA applies to non-residents earning income from royalties or fees for technical services that are effectively connected to a permanent establishment (PE) in India. 

3. Sec 115A:

Sec 115A applies to non-residents earning income from dividends, interest, royalties, and fees for technical services without a PE in India.

4. Impact:

This ensures that non-resident service providers are not doubly taxed on the same income, addressing concerns about overlapping tax provisions related to permanent establishments, royalties, and fees for technical services.