Budget eases tax rules for contract manufacturers, to help Apple scale up

Apple

• India exempts foreign firms from machinery tax for 5 years in contract manufacturing.
• Policy change boosts local manufacturing for Apple and other electronics firms.
• Exemption for units in customs-bonded zones benefits export operations.

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Finance minister Nirmala Sitharaman in her Budget delivered a key policy boost to global electronics companies, including Apple, by allowing them to provide machinery to their local contract manufacturers for up to five years without triggering tax exposure.

The Budget, presented on February 1, clarifies that mere ownership of manufacturing equipment by a foreign entity will not, by itself, constitute a taxable “business connection”.

Apple had pushed for the change, warning that income-tax rules could undermine its India expansion. The iPhone maker feared that purchasing high-end manufacturing equipment for its local contract manufacturers could be construed as a taxable business presence, exposing it to levies on its India sales profits.

In China, Apple procures and owns the machinery used to manufacture iPhones and supplies it to its contract manufacturers without facing any tax liability.

Because of this uncertainty, Apple’s partners, including Foxconn and Tata Electronics, were forced to invest billions of dollars in machinery themselves.

Manufacturing boost

The government said “to promote manufacturing of electronic goods for a contract manufacturer, changes have been introduced to ensure that mere ownership of capital goods, equipment or tooling by a foreign company will not, by itself, result in taxable income in India.

"To provide fillip to toll manufacturing in India, it is proposed to provide exemption to any foreign company who provides capital goods, equipment and tooling to any toll manufacturer in a bonded zone who is engaged in manufacturing of electronic goods. The exemption is proposed for a period of five tax years beginning on 1st April, 2026," Sitharaman said.

According to the explanatory notes accompanying the Budget, any income arising from providing such capital goods to an Indian-resident contract manufacturer will qualify for exemption. The provision will remain in effect until the 2030–31 tax year.

"Any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India, is eligible for exemption," as per the budget documents.

However, the relief applies only to units operating in customs-bonded areas, which are treated as being outside India’s customs territory. Products sold into the domestic market from these facilities will attract import duties, making the scheme primarily export-oriented.

Apple India didn't respond to Moneycontrol's queries.

Good for business

"...measures such as the five-year income tax exemption for foreign suppliers of capital equipment in bonded zones, the safe harbour framework for non-resident component warehousing, customs decriminalisation, and extended validity of advance rulings are expected to improve ease of doing business, reduce compliance friction, and strengthen investor confidence," Pankaj Mohindroo, chairman of India Cellular and Electronics Association (ICEA) said in a statement.

ICEA represents Apple, Foxconn, Dixon, Oppo, Vivo and Lava among others.

Tarun Pathak, research director at Counterpoint, said the move is a catalyst for export growth in the EMS segment. It effectively mitigates two major pain points — margin pressure and capital constraints for equipment — closing the competitiveness gap between local operations and global ones.

Apple is rapidly deepening its India supply chain, moving beyond components to local manufacturing of the machinery used to produce iPhones. Around 35 companies are now active in the capital equipment ecosystem, with nearly half beginning to work directly with Apple over the past 20–24 months.

The company is also raising local value addition in India-made iPhones, targeting parity with China within two to three years. Major suppliers include Titan Engineering and Automation Ltd (TEAL), Jyoti CNC Automation, Bharat Forge and Wipro, alongside several smaller and non-Chinese firms that have set up operations in India, Moneycontrol reported exclusively on Septeber 24, 2025.

Apple plans to expand this partner base further as it seeks to cut logistics risks, lower costs and build a more resilient supply chain.

The policy change comes as Apple accelerates its India strategy amid efforts to diversify beyond China. According to Counterpoint Research, the iPhone’s share of the Indian smartphone market has doubled to 8 percent since 2022. While China still accounts for around 75 percent of global iPhone shipments, India’s share has quadrupled to 25 percent over the same period.