Govt weighs extending presumptive tax regime to renewable energy sector

New Delhi: India is weighing a proposal to extend a presumptive tax regime for non-residents to the renewable energy sector, including bio energy, said people familiar with the matter.

This could cover foreign companies providing technical support for setting up solar plants and participating across the renewable energy value chain. A final decision will be taken after considering the revenue implications, the people said. The proposal is in line with the government's broader push to attract foreign expertise while continuing to expand clean energy manufacturing and infrastructure.

"Providing tax certainty for foreign partners would materially support project execution and accelerate capacity addition in renewables," said a person involved in the discussions. The Finance Act, 2025 had introduced a special presumptive taxation framework under Section 44BBD for non-resident companies.


Other Strategic Sectors
The framework includes companies providing technology and services related to the setting up or manufacturing of goods in the electronics sector.

The regime simplifies tax compliance by presuming a fixed percentage of revenue or gross receipts as taxable income, regardless of actual expenses incurred. The new income tax regime, effective April 1, 2026, deems 25% of the total amount received by non-residents for services or technology as taxable profits, resulting in an effective tax rate of less than 10% on gross receipts.

The domestic industry has pressed for expanding it to other strategic sectors requiring technology transfers. A NITI Aayog working paper issued in October proposed an optional, sector-specific presumptive tax scheme for foreign firms, arguing it would reduce litigation, boost investor confidence, and help draw higher-quality foreign direct investment.

HEAVY IMPORT DEPENDENCE
Policymakers are now examining whether a similar framework can be rolled out for renewables, a sector that remains heavily dependent on imported technology and foreign technical know-how.

Currently, local companies often contractually bear the tax liability of overseas service providers, raising project costs, complicating compliance, and delaying execution.

The new tax regime could have safeguards such as minimum investment thresholds and eligibility conditions, to be prescribed by the Ministry of New and Renewable Energy, said the people cited above.

“Extending the presumptive taxation regime for non-residents to renewable energy would enhance clarity, provide certainty and simplify compliance for foreign investors, encouraging greater participation in India’s clean-energy transition,” said Jimit Devani, partner, direct tax at Deloitte India.