New Delhi, February 3, 2026, 00:37 IST
India has carved out a five-year income tax exemption that lets foreign companies supply manufacturing machines to Indian contract makers in special bonded zones, a change that addresses a long-running concern raised by Apple. (Reuters)
The tweak matters because Apple has been scaling up iPhone production in India as it reduces reliance on China, and the new rule lowers a cost-and-tax hurdle for that build-out. Counterpoint Research said iPhones have about 8% of India’s smartphone market, while India now accounts for roughly a quarter of global iPhone shipments. (Financial Express)
In her budget speech, Finance Minister Nirmala Sitharaman proposed an income tax exemption “for 5 years” for non-residents that provide capital goods and tooling to a “toll” manufacturer in a bonded zone, an industry term for contract manufacturing. The exemption is proposed for five tax years starting April 1, 2026. (Gov)
Apple had pushed for changes to India’s income tax framework after worrying that paying for high-end iPhone equipment could be treated as a “business connection” — a taxable link that can pull a foreign firm’s profits into India’s tax net. That risk meant partners such as Foxconn and Tata had to buy machines themselves, spending billions of dollars. (The Economic Times)
Revenue Secretary Arvind Shrivastava, speaking after the budget, said the aim was to give investors clarity, adding: “We are giving them certainty.” (The Indian Express)
The exemption is tied to customs-bonded areas, which are treated as outside India’s customs border for duty purposes, making them mainly attractive for export production. Phones sold into India from such facilities would still face import taxes, the report said. (Business Recorder)
An income tax department FAQ said the “contract manufacturer” would be an Indian resident company that makes electronic goods on behalf of the foreign company for a fee and operates in a custom bonded area under India’s customs law. It said the proposed amendment would apply up to the 2030-31 tax year. (Gov)
Ernst & Young’s budget note said the electronics-manufacturing exemption would be effective from April 1, 2026, and would apply where the contract manufacturer is an Indian resident company producing electronic goods for the foreign company in a custom bonded area. (EY)
The change could shift more upfront spending from Indian assemblers to global brands, especially in electronics where machines are costly and product cycles are short. Apple did not immediately respond to a request for comment. (ETTelecom.com)
The earlier rules did not bite Apple’s South Korean rival Samsung in the same way because most of its phones in India are made in its own factories rather than through contract manufacturers, a model difference that blunted the tax risk. (VnExpress International)
But some tax specialists cautioned the wording will matter. Nishith Desai Associates wrote that the exemption’s drafting leaves room for interpretational disputes and that a narrow reading could limit relief to rental- or lease-type income, while the time-bound window to 2030-31 could revive uncertainty later. (Nishithdesai)
