India plans long-term tax relief for electronics

Electronics factory circuit boards on assembly line amid long-term tax relief plans for manufacturers

Key Points

01New bill aims to extend electronics tax exemptions to FY2040-41
02Contract manufacturing of specified devices would qualify
03Foreign firms using bonded warehouses would gain tax relief
04Offshore investment funds may see simplified tax conditions

India readies new tax amendment bill

Finance Minister Nirmala Sitharaman is set to introduce the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha this week. The legislation is focused on tax changes affecting electronics manufacturing and investment funds with management activity in India. Its provisions are designed with a long time horizon, setting tax rules that would apply through the financial year 2040-41.

A central element of the bill is an extension of tax exemptions for contract manufacturing of specified electronic goods. The extension would run through FY 2040-41, effectively until March 31, 2041, providing a defined end date for the relief. This replaces an earlier, shorter expiry timeline that is not detailed in the verified material.

Scope of tax relief for electronics manufacturing

The bill would define a category of "specified electronic goods" that qualify for the extended tax exemptions. Items explicitly listed include mobile phones, laptops, tablets, servers and wearables, along with related components and sub-assemblies. Contract manufacturers of these products in India would be eligible for the tax benefits for the duration of the extended period.

The measure is aimed at contract manufacturing activity rather than only brand owners. By structuring relief around specified product categories, the proposal clarifies which types of electronics production can access the exemptions. The defined list also offers manufacturers clearer guidance on eligible lines of business.

Tax incentives for foreign component suppliers

Beyond domestic contract manufacturing, the draft legislation includes tax relief for foreign companies participating in the electronics supply chain. Foreign firms that store electronic components in customs-bonded warehouses in India, when those components are supplied to Indian contract manufacturers, would be eligible for exemptions. This relief would be available until FY 2040-41, matching the timeline for domestic manufacturing incentives.

The bonded-warehouse provision is structured to support the flow of parts and components into local production. By covering component storage and supply to contract manufacturers, the measure links upstream foreign suppliers with downstream Indian assembly operations under a common tax framework and timeframe.

Changes for offshore investment funds

The bill also addresses tax treatment for Eligible Investment Funds and other offshore funds that are managed from India. It proposes to relax and simplify the eligibility conditions these funds must meet to obtain tax exemptions on their global income. The changes would affect requirements such as minimum investor counts, minimum fund corpus and diversification caps.

By easing these conditions, the proposal aims to make it more straightforward for qualifying offshore funds with Indian-based managers to access existing exemptions. The adjustment would align the tax framework for such funds with the broader effort to provide clearer, long-term rules for capital allocation linked to India.

Key Takeaways

01The bill establishes a long-dated tax framework for electronics manufacturing, giving contract producers visibility on incentives through FY2040-41.
02Including both finished devices and components under the definition of specified electronic goods integrates more of the hardware value chain into the tax regime.
03Extending relief to foreign firms using bonded warehouses connects global component suppliers more closely with Indian contract manufacturing operations.
04Simplified conditions for offshore funds managed from India align tax policy toward attracting and retaining cross-border capital under clearer rules.

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