The move is aimed at strengthening India’s position in global supply chains by combining low post-tax costs with greater certainty.
The budget proposed a revamped safe harbour regime for component warehousing linked to manufacturing, fixing taxable margins at 2% which would result in an effective tax rate of about 0.7%.
“To harness the efficiency of just-in-time logistics for electronic manufacturing, I propose to provide safe harbour to non-residents for component warehousing in a bonded warehouse at a profit margin of 2% of the invoice value,” finance minister Nirmala Sitharaman said in her budget speech.
It will be effective from April 1.
“This proposal is attractive because it delivers a globally competitive tax outcome that can be lower than the 1% effective tax often cited for Vietnam and similar hubs,” said a finance ministry official, who did not wish to be identified.
The proposed safe harbour offers much higher certainty on transfer pricing and audit exposure, the official said, adding that predictable rules make it more valuable than marginally lower headline tax rates offered elsewhere.“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 MNC supply chains,” the official said.
In the budget for 2025-26, the Centre had extended the presumptive taxation regime to electronics, providing a lower effective taxation for non-residents supplying services and technology to electronics manufacturers.
Experts say this certainty was critical for warehousing and component staging, which operates on thin margins and large volumes. Its absence had been a major impediment for multinational enterprises from staging inventory in India for regional distribution.
“Targeted relief for sectors such as electronics, five-year advance rulings and further digitisation of customs and warehousing processes should help ease compliance and reduce cargo dwell time,” said Manoj Mishra, partner and tax controversy management leader, Grant Thornton Bharat.