India has proposed extending crucial tax exemptions for foreign companies that supply machinery to their contract manufacturers, pushing the expiry date from March 31, 2031, to March 31, 2041. This initiative aims to provide long-term tax certainty and marks a significant win for Apple, which is rapidly expanding its iPhone manufacturing operations within the country.
The proposal, detailed in a draft amendment to existing tax laws, requires approval from both Houses of Parliament before it officially takes effect. This extension builds upon an initial exemption introduced in February, following extensive lobbying by Apple to modify income tax regulations.
Addressing Apple's Tax Concerns
Previously, Apple had expressed concerns that its ownership of high-end iPhone manufacturing equipment, supplied to its contract manufacturers in India, could be interpreted as a “business connection” under Indian tax laws. This interpretation had the potential to expose Apple's iPhone profits to taxation in India.
The initial exemption, valid until March 2031, sought to alleviate this risk. The newly proposed extension to 2041 is designed to solidify this tax certainty for foreign companies investing in India's manufacturing sector.
India's Growing Manufacturing Hub
India is increasingly becoming a pivotal manufacturing hub for Apple as the tech giant diversifies its production footprint beyond China. According to data from Counterpoint Research, India is projected to manufacture 26% of the world's iPhones by 2026, a substantial increase from just 6% four years prior.
Relief for Component Storage and Supply
Beyond machinery, the proposed amendments also include tax exemptions for foreign companies on income generated from storing and supplying components. These components are used in the production of various electronics, including mobile phones, tablets, laptops, hearing devices, and wearable electronics, to contract manufacturers until 2041.
This exemption specifically applies to factories and warehouses situated within customs-bonded areas, which are legally treated as being outside India's customs border. While products sold domestically from these facilities would still incur import duties, the arrangement is primarily structured to support export-oriented manufacturing.
Riaz Thingna, Partner at Grant Thornton Bharat, noted that these changes are expected to strengthen India's manufacturing ecosystem. "The proposed tax changes will enable foreign companies to store and transfer critical equipment and components in India for their contract manufacturers, helping mitigate supply chain disruptions arising from trade uncertainties while providing greater tax certainty," Thingna told Reuters.