According to Business-Today, Finance Minister Nirmala Sitharaman is set to introduce tax amendments that would extend by 10 years—to tax year 2040-41—the tax exemption for foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers of specified electronic goods. The bill, which has been circulated, proposes to replace the broad reference to "electronic goods" with a defined list of "specified electronic goods" as part of the same amendment.
Tax exemption extended to 2040-41
Business-Today reported that the amendment extends, by 10 years, the tax exemption available to foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers engaged in manufacturing specified electronic goods. The extension runs through tax year 2040-41. According to the bill, defining the eligible product categories is expected to reduce interpretational disputes and provide long-term tax certainty for global manufacturers.
"This amendment brings greater clarity to the tax exemption available to foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers engaged in manufacturing specified electronic goods. By expressly defining the eligible product categories, the bill is expected to reduce interpretational disputes, while the extended exemption provides long-term tax certainty for global manufacturers," said Amit Maheshwari, managing partner at consulting company AKM Global.
Expanded list of specified electronic goods
Business-Today said the bill expands and clarifies the eligible electronic products covered under the incentive regime. The defined list of specified electronic goods includes:
- Mobile phones
- Laptops
- Tablets
- Servers
- Wearables
- Hearables
- Other related sub-assemblies
New exemption for customs bonded areas
The bill also proposes a new tax exemption for foreign companies undertaking the storage and sale of electronic components through customs bonded areas, where such components are supplied to Indian contract manufacturers of specified electronic goods. According to Business-Today, the exemption is available until 31 March 2041 and is subject to prescribed reporting requirements.
Fund conditions, REITs and rough diamonds
Business-Today further reported that conditions for offshore investment funds are proposed to be rationalised by removing several prescriptive eligibility conditions. Dividend tax neutrality is proposed to be restored for REIT and InvIT investors. In addition, government is proposing a tax exemption on income from the sale of rough diamonds in the hands of an overseas company engaged in diamond mining or functioning as a sightholder, broker, aggregator, or a tender and auction entity for such business, for 15 years, ending in March 2041.
Executive view: calibrated shift
"The bill signals a calibrated shift from short-term relief to longer-term competitiveness. While the Ordinance addressed immediate concerns arising from global economic developments, govt has now supplemented those measures with additional reforms following stakeholder consultations… The liberalisation of the fund management regime, incentives for electronics supply chains, facilitation measures for data centres and diamond trading, and tax relief for foreign investors in govt securities collectively point towards a policy objective of attracting global capital and business activity into India. Collectively, the amendments reflect a clear emphasis on investment facilitation, supply-chain resilience and long-term tax certainty," said Richa Sawhney, tax partner at Grant Thonton Bharat.
Key provisions at a glance
| Provision | Proposed change per Business-Today | End date |
|---|---|---|
| Defined list of specified electronic goods | Replaces broad reference to "electronic goods" for exemption purposes | Tax year 2040-41 |
| Tax exemption extension | Exemption for foreign suppliers of capital goods, equipment or tooling to Indian contract manufacturers extended by 10 years | Tax year 2040-41 |
| Customs bonded area exemption | New exemption for foreign companies storing and selling electronic components supplied to Indian contract manufacturers | 31 March 2041 |
| Offshore investment funds | Conditions rationalised by removing several prescriptive eligibility conditions | Not stated |
| REIT and InvIT investors | Dividend tax neutrality restored | Not stated |
| Rough diamond sales | New tax exemption for overseas companies engaged in diamond mining, sightholders, brokers, aggregators, tender and auction entities | March 2041 (15 years) |
What it means for manufacturers
According to Business-Today, the amendments collectively point toward a policy objective of attracting global capital and business activity into India. For manufacturing executives, the defined product list gives Indian contract manufacturers and their foreign suppliers a clearer basis for qualifying for the tax exemption, while the customs bonded area measure extends the exemption to the storage and sale of electronic components. The 10-year extension to 2040-41 provides long-term certainty for capital investment decisions in electronics production.
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