Safe harbour regime for component warehousing gives better post-tax cost option: sources

New Delhi, Feb 7 (PTI) The new safe harbour regime proposed in the Budget for component warehousing linked to manufacturing with effective tax of about 0.7 per cent offers a comparable-or-better post-tax cost option with lower regulatory risk, Finance Ministry sources said on Saturday.

To harness the efficiency of just-in-time logistics for electronic manufacturing, the 2026-27 Budget has proposed to provide safe harbour to non-residents for component warehousing in a bonded warehouse at a profit margin of 2 per cent of the invoice value.

The resultant tax of about 0.7 per cent will be much lower than in competing jurisdictions.

Finance Ministry sources said the Budget proposal is attractive because it delivers a globally competitive tax outcome that can be lower than the 1 per cent effective tax often cited for Vietnam and similar hubs.

"This also offers much higher certainty on transfer pricing and audit exposure. Unlike "low-tax" jurisdictions where benefits can be conditional on incentives, substance tests, or periodic renegotiations, a codified safe harbour typically reduces litigation risk, compliance friction, and time-to-decision for MNC supply chains," sources said.

This certainty matters for manufacturers because warehousing/parts staging is a high-volume, low-margin function. Hence predictable, low taxation plus fewer disputes can be worth more than a headline incentive.

Sources said India can offer a comparable-or-better post-tax cost with lower regulatory risk, making the overall proposition stronger than a marginally higher effective rate elsewhere. PTI JD MR MR