A foreign technology or engineering company is helping an Indian company set up a plant that makes electronic goods. The Indian company pays it fees. The foreign company asks a simple question: how much of that fee will India tax, and how is the profit worked out?

Section 44BBD of the Income-tax Act, 1961 answers that question with a fixed rule instead of a profit-and-loss account. This article explains who the rule is for, how the number is computed, what you cannot do alongside it, and where it sits in the new Income-tax Act, 2025.

## Who this rule is for

The section is not for Indian businesses. It is for a **non-resident** assessee. It applies when that non-resident is "engaged in the business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India" (s.44BBD(1), Income-tax Act, 1961).

Two further conditions sit on the customer side. The services or technology must be provided to a **resident company**, and that company must:

- be establishing or operating an electronics manufacturing facility, or a connected facility, for manufacturing or producing electronic goods, article or thing in India, **under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology**; and
- satisfy "the conditions prescribed in this behalf" (s.44BBD(1)(a) and (b), Income-tax Act, 1961).

So a partnership, a proprietor or a foreign branch buying the services does not bring the section into play. The customer must be a resident company, inside a notified MeitY scheme.

## How the profit is worked out

Normally a business computes profit by taking receipts and deducting expenses under sections 28 to 43A of the 1961 Act. Section 44BBD overrides that. It begins "Notwithstanding anything to the contrary contained in sections 28 to 43A" and then says that "a sum equal to twenty-five per cent." of a defined total "shall be deemed to be the profits and gains" of the non-resident's business, chargeable under the head "Profits and gains of business or profession" (s.44BBD(1), Income-tax Act, 1961).

The defined total is the sum of two amounts (s.44BBD(2), Income-tax Act, 1961):

1. the amount paid or payable to the non-resident, or to any person on his behalf, on account of providing services or technology; and
2. the amount received or deemed to be received by the non-resident, or on his behalf, on account of providing services or technology.

Put plainly, it covers fees for services or technology that are paid or payable, and fees that are received or deemed received. The deemed profit is 25% of the total.

**Illustration (round numbers, not a real case).** Suppose the fees paid or payable for the services and technology come to ₹10 crore. The deemed business profit is 25% of ₹10 crore, which is ₹2.5 crore. The non-resident's own costs are not deducted separately; the 25% is the profit. The rate of tax applied to that profit depends on the non-resident's status and is not covered here.

## What you cannot do alongside it

The section closes several doors (s.44BBD, Income-tax Act, 1961):

- **No section 44DA or section 115A.** The proviso to sub-section (2) says the provisions of section 44DA or section 115A "shall not apply in respect of the amounts referred to in this sub-section". The same fees therefore are not also computed under those sections.
- **No set-off of old losses and depreciation.** Sub-section (3) says that where a non-resident declares profits under sub-section (1), "no set off of unabsorbed depreciation and brought forward loss shall be allowed" for that previous year, notwithstanding section 32(2) and section 72(1).

Pause on that second point. If the non-resident has carried-forward losses from earlier years, they cannot reduce this income in the year the section is used. Factor that into the decision before you file.

## From when does it apply

The Finance Act, 2025 inserted section 44BBD after section 44BBC of the 1961 Act "with effect from the 1st April, 2026" (section 11, Finance Act, 2025). The text of the section contains no end date. We did not find a sunset date in the section as inserted, and the Finance Act, 2026 text on file does not amend it.

Our reading is that the first assessment year is 2026-27 (previous year 2025-26), and that the Income-tax Act, 1961 governs that return. That is a reading of the words "with effect from the 1st April, 2026", not a separate statement of an assessment year in the Finance Act, so have it confirmed for your facts. Because the Income-tax Act, 2025 takes over for tax years beginning on or after 1 April 2026, section 44BBD in practice governs income up to the previous year 2025-26.

## The Income-tax Act, 2025 counterpart

The Income-tax Act, 2025 applies to tax years beginning on or after 1 April 2026, the first being 2026-27. The official 1961-to-2025 section mapping maps section 44BBD of the 1961 Act to **section 61 of the Income-tax Act, 2025**, titled "Special provision for computation of income on presumptive basis in respect of certain business activities of certain non-residents".

Section 61(2) of the 2025 Act is a table of specified businesses. The electronics services business is **Sl. No. 6**: "Business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India to a resident company", for a specified assessee who is a non-resident. The profit is "25% of (A+B)", where A is the amount paid or payable to the non-resident (or to any person on his behalf) for services or technology, and B is the amount received or deemed to be received by or on behalf of the non-resident for the same (s.61(2), Table, Sl. No. 6, Income-tax Act, 2025).

Three points carry over or sit alongside:

- The resident company must be establishing or operating the facility under a scheme notified by the Ministry of Electronics and Information Technology and must satisfy the prescribed conditions (s.61(8), Income-tax Act, 2025).
- Sections 59 and 207 of the 2025 Act do not apply to these amounts (s.61(9), Income-tax Act, 2025). Those are the 2025 Act's provisions on royalty and fees for technical services (and, for foreign companies, dividends), which correspond to sections 44DA and 115A of the 1961 Act that section 44BBD kept out.
- No loss, allowance or deduction allowed under the Act can be set against the income computed this way (s.61(4), Income-tax Act, 2025).

## The prescribed conditions for the resident company

For tax year 2026-27 onward, rule 45 of the Income-tax Rules, 2026 sets the conditions. The resident company must (r.45(1), Income-tax Rules, 2026):

- be establishing or operating an electronics manufacturing facility, or a connected facility, under a scheme notified by the Ministry of Electronics and Information Technology "as modified from time to time"; and
- "not become ineligible for the such scheme at any time of the tax year for which tax is to be calculated for the income of the non-resident".

The rule also says that "electronics goods" means goods covered under that scheme, "including their supply chain ecosystem" (r.45(2), Income-tax Rules, 2026). The second condition matters in practice. If the customer company falls out of the scheme at any point during the year, the presumptive route can be lost for that year's income.

## Step by step: working out whether it applies

1. **Check the payee.** Is the person receiving the fees a non-resident? If not, stop; the section is not for them.
2. **Check the work.** Is it services or technology provided in India for setting up an electronics manufacturing facility, or in connection with manufacturing electronic goods?
3. **Check the customer.** Is it a resident company, and is it establishing or operating the facility under a scheme notified by the Ministry of Electronics and Information Technology? Ask the customer for its scheme approval details and keep a copy. Which scheme or schemes qualify is not something we could confirm from the text we hold, so read the current MeitY notification.
4. **Check the prescribed conditions** for the year (rule 45, Income-tax Rules, 2026, for tax year 2026-27 onward).
5. **Add up the fees.** Total the amounts paid or payable and the amounts received or deemed received for the services or technology.
6. **Take 25%.** That is the deemed business profit.
7. **Check carried-forward losses.** They cannot be set off against this income for the year.
8. **Pick the right Act for the year.** The Income-tax Act, 1961 for income up to the previous year 2025-26; the Income-tax Act, 2025 from tax year 2026-27.

## What not to do

- **Do not assume every foreign vendor qualifies.** A foreign supplier of goods only, or a non-resident working for a customer outside a notified MeitY scheme, is outside the section on its own words.
- **Do not also claim section 44DA or section 115A treatment** on the same fees in the 1961 Act years (proviso to s.44BBD(2), Income-tax Act, 1961).
- **Do not plan to absorb old losses** against the deemed profit in the year the section is used (s.44BBD(3), Income-tax Act, 1961).
- **Do not use the 1961 section number for later years.** From tax year 2026-27 the working provision is section 61(2), Table, Sl. No. 6 of the 2025 Act.
- **Do not state a tax rate from this article.** It covers how the deemed profit is computed, not the rate that then applies.

## What to do now

- **Next step:** Collect the contract, the payment schedule, and the customer's scheme approval, then total the fees on the paid-or-payable and received-or-deemed-received bases.
- **Deadline:** Return due dates depend on the non-resident's status and the year; confirm them against the Act for that year before you plan (the Income-tax Act, 1961 for assessment year 2026-27, the Income-tax Act, 2025 from tax year 2026-27).
- **Consequence:** If the customer is outside a notified MeitY scheme, section 44BBD and section 61(2), Sl. No. 6 do not apply and the fees are taxed under the ordinary rules instead.

Have a CA review your facts before you act or file.

## Frequently asked questions

**Is section 44BBD for Indian companies that make electronics?**
No. It applies to a non-resident that provides services or technology to a resident company making electronics goods. The resident company is the customer, not the taxpayer under this section (s.44BBD(1), Income-tax Act, 1961).

**What percentage of the fees is treated as profit?**
Twenty-five per cent of the sum of the amounts paid or payable and the amounts received or deemed received for the services or technology (s.44BBD(1) and (2), Income-tax Act, 1961; s.61(2), Table, Sl. No. 6, Income-tax Act, 2025).

**Can the non-resident set off brought-forward losses against the 25% profit?**
Not under the 1961 Act in a year where the profit is declared under section 44BBD(1). Sub-section (3) bars set-off of unabsorbed depreciation and brought-forward loss for that year (s.44BBD(3), Income-tax Act, 1961). Under the 2025 Act, no loss, allowance or deduction can be set against the computed income (s.61(4), Income-tax Act, 2025).

**Does the section have an end date?**
The text of section 44BBD as inserted by the Finance Act, 2025 states none, and we found no amendment in the Finance Act, 2026 text we hold. Check the current Act before relying on that for a long contract.

**What replaces section 44BBD in the new Act?**
Section 61 of the Income-tax Act, 2025, in its table at Sl. No. 6, per the official 1961-to-2025 section mapping.

**Which MeitY scheme counts?**
The text says "a scheme notified by the Central Government in the Ministry of Electronics and Information Technology" and does not name one. Read the current notification and your customer's approval under it.

Canonical: https://www.harunraaj.com/blog/section-44bbd-electronics-services