By Nikunj Ohri and Aditya Kalra
NEW DELHI, Feb 1 (Reuters) – India’s government on Sunday gave Apple a major victory by allowing foreign companies to supply machines to their contract manufacturers in certain areas for five years without any tax risk.
Apple has been growing in India in recent years as it diversifies beyond China. Counterpoint Research says the iPhone’s share of the Indian market has doubled to 8% by 2022. And while China still accounts for 75% of global iPhone shipments, India’s share will double to 25% by 2022.
Apple has been lobbying India’s government to modify its income tax laws to ensure the company is not taxed for owning the high-end iPhone machinery it supplies to its contract manufacturers.
In India, unlike in China, Apple was concerned that if it paid for machines for its contract manufacturers, Indian law could consider that the so-called “business connection” and impose taxes on the profits of its iPhone sales. This had forced its contract manufacturers Foxconn and Tata to spend billions of dollars themselves on machines.
India on Sunday said that “to promote the manufacturing of electronic goods for a contract manufacturer”, it is making certain changes in the law to ensure that the mere ownership of machines by a foreign company does not lead to taxes on it.
The decision was made public as part of Finance Minister Nirmala Sitharaman’s annual budget 2026-27, presented on Sunday.
The move could encourage Apple and other companies to invest quickly in the electronics manufacturing space by taking over the initial costs for expensive machines, reducing the initial cost burden on the contract manufacturers they partner with.
“We are saying that if you bring your machine, and that machine is used by a local manufacturer to produce something, we will … exempt you for 5 years. We are giving them certainty,” Revenue Secretary Arvind Shrivastava said at a post-budget press conference.
SCALE UP FASTER AND MORE CONFIDENCE
Smartphone manufacturing is a key plank of Prime Minister Narendra Modi’s agenda for economic growth.
The rule change will apply till the tax year 2030-31 and only to factories set up in so-called customs bonded areas – which are technically considered to be outside India’s customs border. If the equipment is sold in India by such factories, they attract import taxes, making such facilities attractive only for export.
“Any income arising from the provision of capital goods, equipment or tools to a contract manufacturer, which is a company resident in India, is eligible for exemption,” the Indian government said in one of its explanatory budget documents.