India changes tax rules to support Apple’s manufacturing expansion

India has introduced a significant policy change that strengthens Apple’s manufacturing position in the country by allowing foreign companies to fund factory equipment without triggering tax liabilities. The move is aimed at accelerating electronics manufacturing, lowering costs for contract manufacturers, and reinforcing India’s role in global supply chains.

The change, announced as part of India’s annual 2026–27 budget, allows companies such as Apple to provide machinery to their manufacturing partners for five years without creating a taxable presence under Indian law. The rule applies to factories operating in customs-bonded areas and is designed primarily to support export-oriented production.

Apple Manufacturing in India Gains Policy Support

Apple has been expanding manufacturing operations in India as part of its broader strategy to reduce dependence on China. According to Counterpoint Research, Apple’s iPhone market share in India has doubled to 8 percent since 2022. During the same period, India’s share of global iPhone production has quadrupled to 25 percent, while China still accounts for about 75 percent of shipments.

Despite this growth, Apple faced a regulatory hurdle that complicated its ability to directly fund manufacturing equipment in India. Unlike China, where Apple can supply machinery without tax implications, India’s income tax framework raised concerns that ownership of production equipment could be seen as a “business connection.” Such a classification could expose Apple to taxes on its iPhone sales profits in the country.

Because of this risk, Apple’s contract manufacturers, including Foxconn and Tata, were required to invest billions of dollars in equipment themselves, increasing costs and slowing expansion.

Apple and Tax Risk Under Previous Indian Law

Apple had been lobbying Indian authorities to amend income tax laws to ensure that it would not be taxed simply for owning high-value iPhone manufacturing equipment used by local contract manufacturers.

The concern centered on whether Apple’s involvement in supplying machinery could be interpreted as establishing a taxable presence in India. Under previous rules, this uncertainty created a risk that Apple could be taxed on profits from iPhone sales, even though production was carried out by independent Indian companies.

The revised policy addresses this issue directly. In its budget announcement, India said it is changing the law “to promote manufacturing of electronic goods for a contract manufacturer,” clarifying that ownership of machinery alone will not result in tax liability.

Apple Benefits From Five-Year Tax Exemption Rule

Under the new framework, Apple and other foreign companies can supply capital equipment, tooling, and machinery to Indian contract manufacturers without tax exposure for five years.

“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.

The exemption will apply through the 2030–31 tax year and is limited to factories located in customs-bonded zones. These zones are treated as being outside India’s customs border. While products exported from these facilities benefit from the structure, devices sold domestically will still be subject to import duties.

“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’s India Expansion Aligns With Government Strategy

Smartphone manufacturing is a core component of Prime Minister Narendra Modi’s economic growth strategy, which focuses on increasing exports, attracting foreign investment, and strengthening domestic manufacturing capacity.

The policy shift is expected to encourage Apple to invest more aggressively in India by absorbing the upfront costs of high-end manufacturing equipment. This reduces the financial burden on contract manufacturers and allows faster scaling of production capacity.

“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, expressing concern that the earlier tax framework could limit its long-term expansion plans in the country.

Apple Versus Samsung Manufacturing Models in India

The earlier tax rules had a limited impact on Samsung, Apple’s South Korean rival, because most Samsung smartphones sold in India are produced in company-owned factories rather than through contract manufacturers.

Apple’s manufacturing model relies heavily on third-party partners, making clarity around equipment ownership and tax exposure more critical to its India strategy.

Apple did not immediately respond to a request for comment.

With the new exemption in place, India has removed a key regulatory obstacle for Apple’s manufacturing ambitions. The move positions Apple to deepen its presence in India while supporting the country’s broader goal of becoming a global hub for electronics manufacturing and exports.