New Delhi, February 3, 2026, 00:37 IST
India has introduced a five-year income tax exemption allowing foreign firms to provide manufacturing equipment to Indian contract manufacturers in special bonded zones. This move directly tackles a persistent issue that Apple had flagged. (Reuters)
This change is significant because Apple is ramping up iPhone production in India to cut down its dependence on China. The new rule eases a key cost and tax barrier for that expansion. According to Counterpoint Research, iPhones hold about 8% of India’s smartphone market, and India now accounts for around 25% of global iPhone shipments. (Financial Express)
Finance Minister Nirmala Sitharaman, in her budget speech, announced a five-year income tax exemption for non-residents supplying capital goods and tooling to “toll” manufacturers operating in bonded zones—a term used for contract manufacturing. This tax break would kick in from April 1, 2026, covering five consecutive tax years. (Gov)
Apple lobbied for changes to India’s income tax rules, concerned that purchasing high-end iPhone equipment could create a “business connection” — a taxable link that drags a foreign company’s profits into India’s tax system. Because of that risk, partners like Foxconn and Tata had to buy the machines themselves, shelling out billions. (The Economic Times)
Revenue Secretary Arvind Shrivastava, commenting post-budget, emphasized the goal of providing clear guidance to investors, stating: “We are giving them certainty.” (The Indian Express)
The exemption applies to customs-bonded zones, considered outside India’s customs boundary for duty reasons, primarily benefiting export manufacturing. However, phones shipped from these zones into India would still incur import duties, the report noted. (Business Recorder)
An income tax department FAQ defined a “contract manufacturer” as an Indian resident company producing electronic goods for a foreign firm, charging a fee, and functioning within a custom bonded zone under India’s customs law. The proposed amendment is set to apply through the 2030-31 tax year. (Gov)
Ernst & Young’s budget note states the electronics-manufacturing exemption kicks in from April 1, 2026. It targets contract manufacturers who are Indian resident companies making electronic goods for foreign firms within a custom bonded zone. (EY)
The shift might push upfront costs from Indian assemblers to global brands, particularly in electronics where equipment is expensive and product lifecycles move fast. Apple hasn’t yet commented on the matter. (ETTelecom.com)
Apple’s South Korean rival Samsung escaped the earlier rules mostly unscathed since it manufactures the bulk of its phones in its own Indian factories instead of relying on contract manufacturers. This setup notably reduced its exposure to the tax risk. (VnExpress International)
Some tax experts warned the wording could prove critical. Nishith Desai Associates pointed out that the way the exemption is drafted leaves it open to interpretation. A tight reading might restrict relief solely to rental or lease income. Plus, the fact that the exemption only runs until 2030-31 could stir up fresh uncertainty down the line. (Nishithdesai)
