Highlights:
- India allows foreign firms to fund factory equipment without tax risk
- Policy change delivers a major win for Apple’s India expansion plans
- New rule applies for five years in customs-bonded manufacturing zones
- Move aims to boost electronics exports and manufacturing investment
- Apple’s India production share has risen sharply since 2022
India’s government has handed a major win to Apple by allowing foreign companies to provide machinery to their contract manufacturers in certain areas for five years without triggering tax liabilities.
Apple has been expanding rapidly in India as it diversifies its manufacturing base beyond China. According to Counterpoint Research, the iPhone’s share of the Indian smartphone market has doubled to 8 per cent since 2022. While China still accounts for about 75% of global iPhone shipments, India’s share has quadrupled to 25 per cent over the same period.
Apple had been lobbying Indian authorities to amend income tax laws to ensure it would not be taxed for owning high-end iPhone manufacturing equipment supplied to its contract manufacturers.
Unlike in China, Apple feared that paying for machinery in India could be interpreted as creating a “business connection” under Indian tax law, potentially exposing the company to taxes on its iPhone sales profits. As a result, contract manufacturers such as Foxconn and Tata had been forced to invest billions of dollars themselves in production equipment.
In its annual 2026–27 budget presented on Sunday (1), India said it is changing the law “to promote manufacturing of electronic goods for a contract manufacturer,” clarifying that mere ownership of machinery by a foreign company will not result in tax liability.
The policy change could encourage Apple and other global companies to invest more aggressively in electronics manufacturing by covering the upfront costs of expensive equipment, reducing the financial burden on their manufacturing partners.
“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 five years. We are giving them certainty,” Revenue Secretary Arvind Shrivastava said at a post-budget press conference.
Smartphone manufacturing is a central pillar of Indian prime minister Narendra Modi’s economic growth strategy.
The new rule will apply through the 2030–31 tax year and will be limited to factories located in customs-bonded areas, which are treated as being outside India’s customs border. Devices sold domestically from these facilities will still attract import duties, making such factories primarily attractive for exports.
“Any income arising from providing capital goods, equipment, or tooling to a contract manufacturer that is an Indian resident company will be eligible for exemption,” the government said in its budget documents.
Apple did not immediately respond to a request for comment.
“This exemption removes a key deal-breaking risk for electronics manufacturing in India,” said Shankey Agrawal, a partner at tax-focused law firm BMR Legal. “The result is faster scaling and greater confidence for global electronics players to manufacture in India.”
Reuters has previously reported that Apple held multiple discussions with Indian officials in recent months, concerned that the earlier tax framework could hinder its long-term growth plans.
The previous rules did not significantly affect Apple’s South Korean rival Samsung, as most of its smartphones are manufactured in company-owned factories in India rather than through contract manufacturers.
