Relief for Apple: India proposes extending tax breaks for contract manufacturing

India has proposed extending tax exemptions until 2041 for foreign companies that supply machinery to their contract manufacturers, Reuters reported on Monday. The move would provide long-term tax certainty and hand a major win to Apple as it rapidly expands iPhone manufacturing in the country.

The proposal, contained in a draft amendment to tax laws, extends the exemption from March 31, 2031 to March 31, 2041. The measure will come into effect only after it is approved by both Houses of Parliament.

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APPLE'S TAX CONCERN

India introduced the tax exemption in February this year after Apple lobbied the government to amend income tax rules, the report said. That exemption was valid till March 2031.

The company had argued that ownership of high-end iPhone manufacturing equipment supplied to its contract manufacturers could be treated as a "business connection" under Indian tax laws, potentially exposing its iPhone profits to taxation.

Now, according to the draft, the government has extended the tax break until March 31, 2041 "to provide (tax) certainty" to foreign companies supplying equipment to contract manufacturers in India.

India has emerged as a key manufacturing hub for Apple as the company diversifies production beyond China. According to Counterpoint Research, India is expected to manufacture 26% of the world's iPhones in 2026, up from just 6% four years ago.

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TAX RELIEF FOR COMPONENT STORAGE

The proposed amendments also exempt foreign companies from paying tax on income earned from storing and supplying components used in the manufacture of mobile phones, tablets, laptops, hearing devices and wearable electronics to contract manufacturers until 2041.

The exemption will apply to factories and warehouses located in customs-bonded areas, which are treated as being outside India's customs border.

Products sold in the domestic market from these facilities would still attract import duties, making the arrangement primarily suitable for export-oriented manufacturing, the report said.

Tax expert Riaz Thingna, Partner at Grant Thornton Bharat, said the changes would strengthen India's manufacturing ecosystem by reducing uncertainty for global companies.

"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.