Budget 2026: Five-Year Tax Break for NRI Supplying Capital Goods to Small Manufacturers [Read Finance Bill 2026]

The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026), with the Government announcing a five-year income tax exemption for non-residents who support small manufacturers in India’s bonded zones.

The Finance Minister said the exemption will apply to non-residents supplying capital goods, equipment, components or technical know-how to small manufacturing units operating in bonded warehouses. The policy is aimed at strengthening India’s small manufacturing base and integrating it more deeply into global value chains.

Under the proposal, goods manufactured in bonded warehouses will be taxed at a deemed profit margin of 2 per cent of invoice value, translating into an effective tax rate of around 0.7 per cent. The concessional regime is intended to make India a competitive manufacturing destination compared with other export-oriented hubs in Asia.

Officials said the measure will reduce the cost of accessing advanced machinery and technology for small manufacturers, many of whom face capital constraints. By incentivising non-resident suppliers, the government expects faster technology transfer, improved productivity and better quality standards in domestic manufacturing.

The announcement is in line with the government’s broader push under Budget 2026 to scale up manufacturing, support MSMEs and attract stable long-term foreign investment. Sitharaman emphasised that small manufacturers play a critical role in employment generation and export growth, particularly in labour-intensive sectors.

The tax exemption could encourage multinational firms to partner with Indian small manufacturers, especially in sectors such as electronics, engineering goods, chemicals and precision components. The bonded warehouse model also allows manufacturers to defer duties and taxes until goods enter the domestic market, improving cash flows.

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