The Indian government has removed a major tax risk for foreign firms such as Apple by exempting income tax on equipment supplied to contract manufacturers in the bonded zones for five years. This step will help address Apple’s long-standing worries about the possibility of “business connection” taxes, thereby encouraging faster scaling-up in the growing Indian electronics manufacturing industry. This step will help Apple diversify its strategy by shifting away from China, while the Indian government aims to make the country a manufacturing hub in the global arena.
THE SEAMLESS LINK:
This tax move is set to unlock massive growth for the global electronics giants in India. Apple, one of the major beneficiaries, has witnessed its market share in India double since 2022, with the country now contributing 25% of the global shipments of iPhones, a massive quadrupling in just two years. With a market capitalization of nearly $3.81 trillion and a P/E ratio of 32.80, Apple’s continued investment is a major milestone for the manufacturing sector in India. Apple’s stock is currently trading at $257.08 with an average daily volume of about 44.81 million shares.
Mitigating Tax Barriers to Investment:
Until now, the Indian taxation system was a major barrier. Contrary to the general trend in other manufacturing destinations, foreign firms with high-quality machinery supplied to contract manufacturers in the country faced the risk of being treated as having a “business connection” liable for sales profits tax. This made it necessary for contract manufacturers such as Foxconn and Tata to bear the high cost of equipment, as they could not pass on the burden to the foreign firms due to the risk of tax liability. The exemption, valid until the 2030-31 tax year and applicable only to factories in the customs-bonded areas (technical enclaves outside the Indian customs territory), has now removed this barrier. These areas are mainly focused on export manufacturing, which is in line with India’s aim to enhance its export manufacturing base.
Amplified: India’s Manufacturing Push
The move is in line with the Modi government’s overall plan to promote local manufacturing, especially in the area of electronics and semiconductors. The Union Budget 2026-27 further cements this by allocating more funds to initiatives such as the India Semiconductor Mission (ISM) 2.0 and the Electronics Components Manufacturing Scheme. These initiatives are designed to encourage local manufacturing of equipment and materials, develop local intellectual property, and strengthen supply chains. The historical tax incentives, such as the reduced 15% corporate tax rate for new manufacturing companies, have paved the way for such progress, reflecting the government’s consistent interest in encouraging industrial investment in the country.
Expert Confidence and Future Outlook:
This tax exemption is seen as a major confidence booster for foreign investors. Shankey Agrawal, a partner at BMR Legal, said that the exemption has eliminated a major deal-breaker and will help accelerate operational growth. This is part of Apple’s long-term plan to expand its manufacturing footprint outside of China and has further cemented India’s importance as a key location for its global manufacturing ecosystem. The decision is likely to encourage more foreign direct investment in India’s electronics industry.
