India's government has provided a significant boost to foreign companies, particularly Apple, by exempting income tax on machinery provided to contract manufacturers in bonded zones for five years. This decision, announced as part of Finance Minister Nirmala Sitharaman's 2026-27 annual budget, addresses Apple's concerns about potential "business connection" taxes and aims to foster greater investment confidence and accelerate the expansion of electronics manufacturing within India.
The new rule, effective until the 2030-31 tax year, applies specifically to factories within customs-bonded areas, which are technically considered outside India's customs border and primarily geared towards export production. This means that foreign companies can freely provide machines to their contract manufacturers in these zones without fearing any tax risk. The government stated 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".
Previously, Indian tax laws presented a substantial impediment to foreign investment. Unlike the practice in other manufacturing hubs, foreign companies providing high-value machinery to local contract manufacturers risked being deemed to have a taxable "business connection," potentially leading to taxes on their sales profits. This had compelled contract manufacturers like Foxconn and Tata to absorb the considerable capital expenditure for equipment themselves. Apple, in particular, had been lobbying the Indian government to modify its income tax laws to avoid being taxed for ownership of iPhone machinery provided to its contract manufacturers.
This tax adjustment is poised to unlock substantial growth for global electronics players operating in India. Shankey Agrawal, a partner at BMR Legal, an Indian tax-focused law firm, stated that "This exemption removes a key deal-breaking risk for electronics manufacturing in India," and will result in "faster scale-up and greater confidence for global electronics players to manufacture in India".
Apple has seen its market share in India double since 2022, with the nation now accounting for 25% of global iPhone shipments. This is a significant increase from previous years. By 2026-27, Apple and its suppliers aim to assemble 32% of global iPhone output and 26% of their production value in India. In December 2025, it was reported that Apple's iPhone exports from India had crossed the $50 billion mark.
The Indian government has been keen to promote smartphone manufacturing as a key part of Prime Minister Narendra Modi's agenda. This recent tax exemption aligns with India's broader agenda to become a global manufacturing hub and supports Apple's strategic diversification away from China. The government is focused on creating a more contemporary and user-friendly framework for foreign investment, aligned with India's evolving economic and policy priorities.