Budget 2026's 0.7% tax safe harbour for component warehousing beats hubs like Vietnam, say sources

The Union Budget for FY27 introduces a game-changing safe harbour regime for non-residents warehousing components in bonded facilities linked to just-in-time logistics. Starting April 1, this proposal will enable a 2 per cent profit margin on invoice value, translating to an effective tax of 0.7 per cent, lower than the effective rate of around 1 per cent cited for rival hubs like Vietnam, according to Finance Ministry sources.

In her Budget speech in Parliament, Finance Minister Nirmala Sitharaman announced a proposal to provide safe harbour to non-residents for component warehousing in a bonded warehouse at the per cent profit margin of the invoice value, in order to harness the efficiency of just-in-time logistics for electronic manufacturing.

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

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According to sources, what makes the proposal attractive is its ability to deliver 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," said one of the sources.

"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," noted the source.

Finance Ministry sources also say that on a net-net basis, 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.