NEW DELHI, February 1, 2026, 19:00 IST
- Budget change lets foreign firms supply machinery to Indian contract manufacturers without triggering a taxable “business connection” for five years
- Apple has sought clarity as it scales up iPhone production; suppliers have largely funded equipment to avoid tax disputes
- Relief is tied to export-focused bonded zones; domestic sales from those sites would still draw import duties
India on Sunday changed income-tax rules in its 2026/27 budget to let foreign companies provide machines to local contract manufacturers in some zones for five years without tax risk, a concession that eases Apple’s India manufacturing push. Arvind Shrivastava said the government would “exempt you for 5 years” to give firms “certainty.” (Reuters)
The move matters because Apple’s iPhones in India are built largely through contract manufacturers — companies that make products for another brand — rather than Apple’s own plants. Until now, Apple worried that paying for high-end equipment could be read as a profit-making presence in the country, opening the door to taxes on iPhone profits.
It also lands at a moment when New Delhi is trying to drag more global electronics supply chains onto Indian soil, and keep them there. Smartphone manufacturing has become a policy priority for Narendra Modi’s government, which has pitched the sector as a jobs engine.
The sticking point has been a phrase in Indian tax practice: “business connection”. It is a broad concept — think of it as a taxable link — that can pull a foreign company into arguments over whether it should pay income tax on local profits.
In its budget papers, Finance Minister Nirmala Sitharaman described an exemption for any foreign company that provides “capital goods, equipment and tooling” to a “toll manufacturer” in a bonded zone. Toll manufacturing is a form of contract manufacturing where the brand owner pays a fee for production.
The relief runs through the 2030-31 tax year and is limited to customs-bonded areas, which are treated as outside India’s customs border; phones sold into the domestic market from such sites would still face import duties. “This exemption removes a key deal-breaking risk,” said Shankey Agrawal, a partner at BMR Legal. Counterpoint Research puts iPhones at 8% of India’s smartphone market, double the 2022 share, and says India’s share of global iPhone shipments has climbed to 25% since 2022. (The Economic Times)
The change could alter who writes the first, biggest cheque. Apple’s key India partners, including Foxconn and Tata Electronics, have spent billions of dollars on machinery in part to keep Apple away from a tax fight over equipment ownership.
Some rivals have had a different setup. South Korea’s Samsung makes most of its phones in its own Indian factories, which has left it less exposed to the question of a foreign brand owning equipment inside a supplier’s plant.
The machinery exemption sits inside a budget that tried to put manufacturing at the centre, but did not thrill markets. Stocks fell nearly 2% on Sunday, and Christian de Guzman of Moody’s Ratings called it a “tactical” budget rather than a breakthrough. (Reuters)
Industry lobbyists welcomed the tax clarity. Pankaj Mohindroo, chairman of the India Cellular and Electronics Association, said the five-year exemption in bonded zones and other steps would “reduce compliance friction” and support investor confidence. (Moneycontrol)
But the fine print matters. The benefit is tied to export-oriented bonded zones and a fixed window, and it does not erase import duties for output pushed into India, which could limit how some production lines are planned.
Apple did not immediately comment on the budget change. The shift follows months of discussions with Indian officials over tax exposure tied to equipment, and it gives global electronics firms a cleaner route to fund machines in India without inviting a fresh argument over whether they have “set up shop.”
