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As part of the Union Budget, the Indian government has proposed relaxing laws that previously taxed contract manufacturers of foreign companies for owning equipment. This comes as a win for Apple, Samsung and others that have manufacturing units in India, whether they are owned or through contract and manufacturing partners.
The tech giant had previously lobbied the government to ensure that it doesn’t incur a tax burden for providing manufacturing equipment to its local partners Foxconn and Tata.
Foxconn and Tata have invested billions in setting up plants to manufacture iPhones, but their expansion could be eased along if Apple was able to support them by providing some of the required equipment.
However, under the Income Tax Act, 1961, manufacturing equipment within India owned by a foreign company can be treated as a “business connection”. Hence, Apple was concerned that it could incur taxes on the profits of its iPhone sales.
Now, as part of the Union Budget for 2026-27, Finance Minister Nirmal Sitharaman announced that, “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.”
The exemption, under which Apple wouldn’t incur taxation for merely owning equipment, applies until 2030-31. The same exemption is applicable to other electronic OEMs that own equipment used by manufacturing partners in India.
However, the exemption will only be granted for facilities set up in customs-bonded areas, i.e. areas considered to be outside India’s customs border. As a result, devices manufactured in such factories would incur import taxes if sold within India, and hence the relief could only be utilised for devices intended for export.
In the big picture, the move benefits Apple’s supply chain diversification strategy, of which manufacturing iPhones in India is a crucial part. It currently has five factories in India, two operated by Foxconn and three by Tata.
From the beginning of FY22 until December 2025, the tech giant has shipped over $50 billion worth of iPhones for export through Indian partners. More than one in five iPhones sold worldwide are now made in India.
One of the key drivers of Apple’s manufacturing strategy has been the government’s PLI scheme. While the incentives for smartphone makers will come to an end in March and haven’t been renewed in the FY26 Union Budget, the government has ramped up its investment in electronics component manufacturing to INR 40,000 Cr, a 75% increase. This indicates an intention to go beyond just assembling devices for export and enable Indian firms to get deeper into the electronics manufacturing value chain.
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