India gives Apple 5-year tax exemption to boost iPhone manufacturing

India's government on Sunday handed a major win to Apple by allowing foreign companies to provide machines to their contract manufacturers in certain areas for five years without any tax risk.

Apple has been growing in India in recent years as it diversifies beyond China. Counterpoint Research says iPhone's share of the Indian market has doubled to 8% since 2022. And while China still accounts for 75% of global iPhone shipments, India's share has quadrupled to 25% since 2022.

Apple had been lobbying India's government to modify its income tax laws to ensure the company is not taxed for ownership of the high-end iPhone machinery it provides to its contract manufacturers.

In India, unlike China, Apple was concerned that if it paid for machines for its contract manufacturers, Indian law could consider that a so-called "business connection" and impose taxes on its iPhone sales profits. That had forced its contract manufacturers Foxconn and Tata to themselves spend billions of dollars on machines.

India on Sunday said that "to promote manufacturing of electronic goods for a contract manufacturer", it is making certain law changes to ensure that mere ownership of machines by a foreign company does not lead to taxes on it.

The decision was made public as part of Finance Minister Nirmala Sitharaman's 2026-27 annual budget, presented on Sunday.

The move could prompt Apple and other companies to invest rapidly in the electronics manufacturing space by taking over initial expenses for pricey machines, reducing the initial cost burden on contract manufacturers they partner with.

"We are saying that if you bring your machine, and that machine is used by a local manufacturer to produce something, we will ... exempt you for 5 years. We are giving them certainty," Revenue Secretary Arvind Shrivastava said at a post-budget press conference.

Faster scale-up and greater confidence

Smartphone manufacturing is a key plank of Prime Minister Narendra Modi's agenda for economic growth.

The rule change will apply until the 2030-31 tax year and only to factories set up in so-called customs-bonded areas - which are technically considered being outside India’s customs border. If devices are sold within India from such factories, they will attract import taxes, making such facilities attractive only for exports.

"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 Indian government said in one of its explanatory budget documents.

Apple did not immediately respond to a request for comment.

"This exemption removes a key deal-breaking risk for electronics manufacturing in India," said Shankey Agrawal, a partner at Indian tax-focussed law firm BMR Legal. "The result is faster scale-up and greater confidence for global electronics players to manufacture in India."

Apple held many discussions with Indian officials in recent months to tweak the law as it feared the legislation could hamper its future growth, Reuters has reported.

The earlier rules did not affect Apple's South Korean rival Samsung as almost all of its phones are made in its own Indian factories, and not by contract manufacturers.

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