Budget 2025: India may simplify taxes for foreign semiconductor firms
The Indian government is considering a revision to the Income Tax Act in the upcoming 2025 budget. This proposed change would simplify the taxation process for international semiconductor companies, a senior government official told Moneycontrol. The move is part of a larger effort to attract global businesses and strengthen India's semiconductor manufacturing sector.
Presumptive taxation scheme under consideration
The proposed amendment includes introducing a presumptive taxation scheme under Section 44 of the Income Tax Act. Already used by industries like oil and shipping, the scheme enables foreign companies to calculate their income as a percentage of their turnover. The official said that this simplified system would make India an attractive destination for foreign firms looking to set up semiconductor manufacturing here.
Tax amendment to ease compliance for foreign firms
The tax amendment is likely to be part of the Finance Bill 2025. Its main goal is to simplify compliance for foreign semiconductor companies and make India a global semiconductor manufacturing hub. The official further elaborated that under this scheme, the corporate income tax (CIT) rate for foreign companies, usually 35%, would be levied on a fixed percentage of their turnover, simplifying and making tax calculations predictable.
MeitY's role in the proposed tax amendment
The Ministry of Electronics and Information Technology (MeitY) had recommended this tax amendment to ease the regime for foreign firms looking to set up labs and manufacturing units in India. The official revealed that "MeitY had sent some suggestions for semiconductors to simplify the taxation regime so foreign companies can set up labs over here. They are asking for a simple regime of taxation."
Tax scheme's potential impact on semiconductor industry
The proposed tax scheme could have a major impact on the semiconductor industry. Earlier, it was extended to cruise ships in the July 2024 budget, enabling them to calculate their income as 20% of passenger-generated revenue instead of detailed financial records. The government believes this simplified method can now be adapted for semiconductor companies, with the percentage rate to be determined after studying the industry's profit margins.
PM Modi's vision for India's semiconductor ecosystem
Prime Minister Narendra Modi has long envisioned India as a self-reliant nation in electronic manufacturing. He had said, "The goal is that 100% of electronic manufacturing should happen in India. India will make semiconductor chips and the finished product, too." This new tax regime fits into his vision and is likely to ease the entry of foreign semiconductor firms into the Indian market.
