India Weighs Tax Break for Renewables to Boost Foreign Investment

India's government is weighing a proposal to extend a presumptive tax regime to non-resident companies operating within the renewable energy sector, including bio energy. This potential move aims to attract foreign technical expertise and capital crucial for expanding the nation's clean energy manufacturing and infrastructure.

Tax Certainty for Clean Energy

Providing tax certainty for foreign partners could materially support project execution and accelerate capacity addition in India's renewables. The proposal draws inspiration from the Finance Act, 2025, which introduced a special presumptive taxation framework under Section 44BBD for non-resident companies in sectors like electronics. This regime simplifies tax compliance by presuming a fixed percentage of revenue as taxable income.

Under the proposed framework for renewables, effective from April 1, 2026, 25% of the total amount received by non-residents for services or technology could be deemed taxable profits. This would translate to an effective tax rate of less than 10% on gross receipts, offering significant predictability. "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," said Jimit Devani, partner, direct tax at Deloitte India.

Simplifying Compliance for Foreign Firms

The domestic industry has actively pressed for expanding such a simplified regime to other strategic sectors requiring technology transfers. Currently, local companies often bear the tax liability of overseas service providers contractually. This practice raises project costs, complicates compliance procedures, and can lead to execution delays. A NITI Aayog working paper issued in October proposed an optional, sector-specific presumptive tax scheme for foreign firms, arguing it would reduce litigation and boost investor confidence.

Addressing Import Dependence

Policymakers are examining whether a similar framework can be rolled out for the renewables sector, which remains heavily dependent on imported technology and foreign technical know-how. The new tax regime could incorporate safeguards such as minimum investment thresholds and specific eligibility conditions. These would likely be prescribed by the Ministry of New and Renewable Energy. The initiative is in line with the government's broader push to attract foreign expertise while continuing to expand clean energy manufacturing and infrastructure.