Author: Nikunj Ohri and Aditya Kalra
NEW DELHI, Feb 1 (Reuters) – The Indian government on Sunday allowed foreign companies to supply machines to contract manufacturers in certain regions for five years without any tax risk, delivering a major win for Apple Inc.
Apple’s presence in India has been growing in recent years as it diversifies its business outside China. Counterpoint Research said iPhone’s market share in India has doubled since 2022 to 8%. While China still accounts for 75% of global iPhone shipments, India’s share has quadrupled since 2022 to 25%.
Apple has been lobbying the Indian government to amend its income tax laws to ensure that the company is not taxed on its ownership of the high-end iPhone machines it supplies to contract manufacturers.
Unlike China, in India, Apple is concerned that if it pays its contract manufacturers for machines, Indian law may deem a so-called “commercial nexus” and tax its iPhone sales profits. This has forced its contract manufacturers Foxconn and Tata themselves to spend billions on machinery.
India said on Sunday it was making changes to certain laws “to promote electronics manufacturing by contract manufacturers” to ensure that the mere possession of machines by foreign companies does not result in taxes on them.
The decision was made public as part of the 2026-27 budget presented by Finance Minister Nirmala Sitharaman on Sunday.
The move could prompt Apple and other companies to quickly invest in electronics manufacturing by taking over the initial cost of expensive machines, thereby easing the initial cost burden on the contract manufacturers they work with.
“What we are saying is 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 Minister Arvind Shrivastava said at a post-budget press conference.
Scale faster and with greater confidence
Smartphone manufacturing is an important part of Prime Minister Narendra Modi’s economic growth agenda.
The rule change will apply until the 2030-31 tax year and will only apply to factories set up in so-called bonded zones – areas that are technically considered to be outside India’s customs borders. If these factories sell equipment within India, they will attract import duties, making such facilities attractive only for exports.
“Any income generated from supply of capital goods, equipment or tools to contract manufacturers located in India is eligible for exemption,” the Indian government said in an explanatory budget document.
