FICCI Wants Clear Tax Rules to Help Overseas Indians Bring Business Back Home

by R. Suryamurthy October 28, 2025

By R. Suryamurthy October 28, 2025 0 comments 3 minutes read

Courtesy: X@ficci_india

India’s leading industry body, FICCI, has urged the government to end tax ambiguity that deters foreign companies—including many owned or led by the Indian diaspora—from integrating their global supply chains with India’s manufacturing ecosystem.

At the heart of the issue lies an unresolved question in the new Income Tax Act, 2025: does the mere storage of components or deployment of free-of-cost machinery by foreign manufacturers at Indian contract units amount to creating a “business connection” in India—and therefore, a tax liability?

FICCI says the uncertainty has led several global firms to hold back on transferring technology and equipment to their Indian partners, blunting India’s bid to emerge as a manufacturing hub in electronics, automotive, and aerospace.

A Barrier for Global Indians

The concern resonates across the diaspora business community—from Silicon Valley technology suppliers to London-based engineering firms—who often operate group entities in India. Many avoid warehousing components or loaning equipment to Indian subsidiaries because of fears of attracting Indian tax assessments.

“The absence of clear rules discourages even Indian-origin entrepreneurs abroad from linking their overseas production to Indian facilities,” FICCI warned in its pre-Budget memorandum. “This is slowing down India’s manufacturing momentum.”

Such caution contrasts sharply with the government’s Make in India and China+1 ambitions. Diaspora-owned firms, often with access to advanced technology, remain critical for bringing global know-how and capital into India’s high-value manufacturing chain.

The Just-in-Time Challenge

Modern manufacturing relies on just-in-time (JIT) supply systems—where components are stored near assembly units and deployed as needed to cut delays and inventory costs. But India’s current tax interpretation treats such storage as potential evidence of “business presence,” even when ownership, management, and sales remain offshore.

In practice, this means a non-resident supplier that simply stores chips or machinery in India risks being taxed as if it conducted business here. As a result, many foreign OEMs instead make Indian contract manufacturers import materials directly—an inefficient workaround that increases costs and slows delivery.

What FICCI Wants Changed

FICCI has called for an amendment to Section 9 of the Income Tax Act, 2025, clarifying that storage of components, deployment of machinery, or ownership of manufacturing assets by non-residents should not automatically trigger tax liability, provided the goods are used for manufacturing or export.

The chamber noted that most of India’s tax treaties—including with the US, UK, and Singapore—already exclude warehousing and processing from creating a permanent establishment. However, relying on treaty relief requires extra compliance steps, such as tax residency certificates and detailed filings, which deter smaller foreign and diaspora investors.

FICCI reminded the Finance Ministry that the 2025–26 Budget had proposed a “safe harbor” for such cases but it remains unimplemented. “This is a policy gap that must be closed urgently,” it said.

A Missed Advantage

Other Asian manufacturing hubs like Vietnam and Malaysia have already updated their tax codes to exempt such activities, allowing seamless integration with global supply chains. FICCI argued that India risks losing out on foreign and diaspora-led investment unless similar clarity is provided.

For the global Indian business community, the message from FICCI is straightforward: India’s tax law must reflect the realities of 21st-century manufacturing. Without that assurance, diaspora entrepreneurs may continue to innovate elsewhere—when they could be building the next generation of supply chains in India.