India has proposed extending a tax exemption for foreign companies that supply machinery to Indian contract manufacturers. The new end date is 31 March 2041, against 2031 in the current rule.Apple lobbied for the change and stands to gain more from it than any other company.About The AuthorAt heart, I am a storyteller drawn to the watershed moments that bend the technology landscape. I braid narrative with data, humanise statistics, and trace the arc from first spark to world-changing impact. My reportage, features and reviews are witty, sardonic, visual and vivid, using anecdote to illuminate rather than eviscerate.
As a technology journalist with over sixteen years of experience, I have travelled the world and the seven seas, covered every major tech conference worth its lanyard, chronicled the defining breakthroughs of the last decade and a half, and played a pivotal role in launching some of India’s most important technology publishing platforms across web, print and TV.
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When I am off the clock, I am usually lost in music, from underground electronic and progressive rock to stone-cold blues. I am also an incurable F1 nut, a hangover from my previous life as an auto journalist, and always game for a jam session with friends, where I do my best to make my guitar gently weep.The exemption settles a question that had troubled Apple for years. Owning iPhone tooling inside India could have been read as a taxable presence, exposing the company's Indian profits to Indian tax.What the draft proposesA draft of the tax amendments seen by Reuters extends the break to March 2041. The stated purpose, in the draft's own wording, is to provide tax certainty.The current version arrived in February, as part of the Union Budget for 2026-27. Clause 109 of the Finance Bill amended Schedule IV of the Income-tax Act 2025.Three conditions apply. The foreign company keeps ownership of the capital goods, equipment or tooling. The Indian contract manufacturer keeps control and direction of that equipment. And the manufacturer produces electronic goods on behalf of the foreign company for a consideration.One more condition narrows the field further. The contract manufacturer has to sit inside a customs bonded area, defined under section 65 of the Customs Act 1962. Bonded zones count as outside India's domestic customs border for duty purposes, so the exemption reaches only a slice of Indian manufacturing.More articles by AuthorTrending StoriesThe February version ran to tax year 2030-31. The proposal now on the table adds a decade.This amendment forms part of a much larger legal change. India's Income-tax Act 2025 and Income-tax Rules 2026 both commenced on 1 April 2026, replacing a framework that had stood for six decades. The old previous-year and assessment-year structure gave way to a single tax year concept, which alters how time-based tests for taxable presence get calculated.Electronics shared the treatment with another sector. The Finance Act 2026 introduced a parallel exemption for foreign companies earning Indian income from buying services at specified data centres, aimed at drawing AI infrastructure investment. Both measures use the same instrument: remove the income from the tax net rather than argue the underlying legal question.What a business connection means, and why it matteredIndian tax law can treat a foreign company as having a taxable presence here through what the statute calls a business connection. Establish one, and India can tax the profits attributable to it.Apple funds the high-precision machinery that Foxconn and Tata Electronics use to build iPhones. Apple owns that machinery. Those machines run on Indian factory floors inside plants Apple does own.Under an aggressive reading, that arrangement could have amounted to a business connection. India could then have taxed a share of Apple's iPhone profits.Chinese tax law leaves the question settled, so the problem surfaced only as Apple began scaling Indian production. Apple asked the government to remove the ambiguity.The February amendment did that by carving the arrangement out of taxable income altogether, rather than by arguing about whether a business connection exists.Apple's ask has a long history. Tim Cook and Narendra Modi agreed in May 2016 to build a production base in India that went past assembly. Apple submitted a list of prerequisites that October, including a fifteen-year duty exemption on raw materials and capital equipment. A panel of ministries rejected the fifteen-year demand and offered a phased localisation programme instead.Apple held about 2 per cent of the Indian smartphone market at the time. Assembly of the iPhone SE had just begun at Wistron's Bengaluru plant. Nine years later Apple has the fifteen years it asked for, on a narrower question, having built the factories first.Why the date moved from 2031 to 2041Factory tooling outlives tax windows. A five-year exemption covers the decision to install a line, and stops short of covering the decision to build a second and third one.Apple is doing the second kind of planning. Foxconn is constructing a 13 million square foot facility near Bengaluru International Airport, on close to 300 acres at Devanahalli, with investment near Rs 20,000 crore and a target of 20 million units a year. Construction runs to December 2027 on some accounts.An exemption expiring in 2031 leaves four years of certainty against a plant with a 20-year life. Fifteen years covers the working life of the asset and the decision to build the next one.The move also lands against a live competitive question. Vietnam and Thailand have absorbed a large share of the manufacturing redirected out of China, and both compete for the same investment.Apple's own commitment has grown past the point where a five-year horizon makes sense. Foxconn has put $1.5 billion into a Chennai plant alongside the Bengaluru project. Tata Electronics absorbed Wistron's Karnataka factory and expanded at Hosur in Tamil Nadu. Canalys tracked Tata's share of Indian iPhone exports climbing from 13 per cent in 2024 to between 37 and 40 per cent through 2025, with analysts projecting half of Indian assembly within two years.The scale this protectsApple manufactured iPhones worth close to $70 billion in India across five years of the production-linked incentive scheme. Exports accounted for about $51 billion of that, or 73 per cent.MetricFigureIndia's share of global iPhone assembly, 202626 per cent (Counterpoint), 28 per cent on some estimatesShare four years earlier6 per centiPhone production value, FY22–FY26About $70 billionExports within thatAbout $51 billionFY26 iPhone exportsRs 2 trillionTata Electronics export value, FY22–FY26$26.3 billionFoxconn export value, same period$25.6 billionCounterpoint Research puts India at 26 per cent of global iPhone assembly in 2026, against 6 per cent four years earlier. Other estimates run to 28 per cent.iPhones became India's single largest exported commodity in the last financial year. Smartphone exports across all brands reached $10.13 billion, the country's top export category for the first time.The speed of that shift shows in monthly data. Apple chartered cargo aircraft in March 2025 to airlift about $2 billion of iPhones to the United States before a tariff round took effect. Foxconn's Indian operations shipped $1.31 billion that month alone, matching its combined January and February total, while Tata shipped a further $612 million, up 63 per cent on February.Product range has widened too. Apple has exported more than a million AirPods units from Foxconn's Indian facility.Tata Electronics has closed the gap on Foxconn faster than most expected. Over the five PLI years, Tata assembled $26.3 billion of exported iPhones against Foxconn's $25.6 billion, having entered only after buying Wistron's Indian operation in November 2023. Foxconn keeps the overall production lead at $38 billion against Tata's $35.5 billion, on the strength of domestic-market volume.Who else the rule coversThe exemption applies to any foreign company supplying equipment to an Indian contract manufacturer inside a bonded zone. Apple is the largest beneficiary rather than the only one.Samsung, Google and Chinese brands running Indian assembly through partners fall inside the same wording. Analysts expect the certainty to encourage fresh commitments from other global electronics firms by easing cost pressure on their manufacturing partners.Samsung runs its own Indian plant at Noida rather than through a contract manufacturer, so the exemption changes less for it. Google assembles Pixel phones in India through partners including Foxconn and Dixon, and falls inside the wording.The government has also been pushing Oppo, vivo and Xiaomi to use India as an export base rather than a domestic supply line. All three assemble here for Indian buyers today.Apple's domestic position has strengthened alongside the export business. The iPhone 17 was India's top-selling smartphone by volume in the first quarter of 2026, taking a 4 per cent share at a price above Rs 82,900, with the iPhone 16 sixth at 2 per cent, on Counterpoint numbers. A brand once stuck near 2 per cent now leads a market of a billion connections on unit sales in a quarter.The part the announcement leaves outAssembly earns India very little of what an iPhone is worth.The Global Trade Research Initiative breaks a $1,000 iPhone down by country. Apple retains about $450 through brand, software and design. Taiwan contributes $150 through chip manufacturing. South Korea adds $90 via OLED screens and memory. Japan supplies $85, most of it camera systems. American component makers including Qualcomm and Broadcom add $80. Germany, Vietnam and Malaysia together account for $45.China and India each earn around $30 per device from assembly. Between them, the two largest assembly nations take under 3 per cent of the retail price.Tarun Pathak, research director at Counterpoint Research, has put true local value addition in India's mobile phone sector at about 16 per cent. Other estimates have gone as low as 15 per cent.So the fifteen-year exemption protects the tax treatment of a stage in the chain that captures a small fraction of the value. The policy argument for doing it anyway rests on jobs, export earnings and the component industry that follows assembly rather than on the assembly margin.Employment numbers support that argument. Foxconn's Devanahalli plant targets 50,000 workers, with women making up around 80 per cent of the iPhone workforce and six weeks of training before deployment. Tata and Foxconn between them run plants employing from 19,000 to more than 42,000 people.The wider sector numbers carry the same argument. India's electronics production has grown close to six-fold over eleven years and the sector now supports around 25 lakh jobs. Across all sectors the PLI schemes drew Rs 1.61 lakh crore of investment, Rs 14 lakh crore of production and Rs 5.31 lakh crore of exports.Scale against the world still looks small. India accounts for under 1 per cent of global electronics trade worth around $3 trillion.What replaced the PLIThe production-linked incentive scheme for large-scale electronics expired in March 2026. Two programmes have taken its place.Bigger of the two is the Electronics Components Manufacturing Scheme. Launched by MeitY in April 2025 with an outlay of Rs 22,919 crore, its budget rose to Rs 40,000 crore in the 2026-27 Union Budget. The scheme targets sub-assemblies, bare components and capital equipment that together make up close to 90 per cent of a mobile phone bill of materials.ECMS runs six years, with turnover-linked, capex-linked and hybrid incentives, part of each tied to job creation. Payouts go on a first-come basis to firms ready for early production.The targets are specific. ECMS aims at meeting 100 per cent of domestic demand for copper-clad laminates, 20 per cent for printed circuit boards and 15 per cent for camera modules. Those three sit among the components India buys from abroad almost in full today.India has set a $500 billion electronics production target for 2030-31.A successor smartphone scheme is under design, with incentives tied harder to exports and to localisation. Officials take the view that the original programme met its goal of satisfying domestic demand, since almost every smartphone sold in India is now assembled here.The risks nobody has pricedComponent imports remain the weak point. India imports close to all its printed circuit boards, at an estimated $2 billion a year, and the wider component base depends on China for most of the rest.Tariff structure works against the same goal. India applies duties above 10 per cent on 35 components, against a 10 per cent cap in Vietnam and China, across a seven-tier structure with some rates reaching 25 per cent.Cost competitiveness lags by 10 to 20 per cent against established hubs, and that gap is what every incentive scheme is built to close. Analysts have long argued that India's success in mobile phones rested on a 20 per cent import duty paired with the PLI, and that the same result failed to appear in IT hardware, which lacked a comparable duty. Research and development capability inside India stays thin by comparison with the hubs it competes against.The US tariff picture adds volatility. Chinese-assembled iPhones have faced US import duties around 55 per cent against some 10 per cent for Indian-made devices, and that gap is what redirected Apple's export strategy. A change in Washington reverses the calculation for every plant now under construction.Export data itself is contested. The Global Trade Research Initiative reported a 58 per cent fall in smartphone exports to the United States between May and August 2025. The India Cellular and Electronics Association rejected the finding as cherry-picked, putting August 2025 exports to the US at $965 million against $388 million a year earlier, a rise of 148 per cent. Both sets of numbers continue to circulate in policy debate, which makes the export trend harder to read than the headline totals suggest.Local friction appears at the site level too. A gram panchayat near Foxconn's Devanahalli plant issued a notice in late 2025 over unpaid property taxes, building norm violations and local hiring, before the state industrial board stepped in to confirm jurisdiction.Revenue foregone is the domestic cost, and the government has published zero estimates of it. Fifteen years of exempted income on machinery supplied by every qualifying foreign company is a number worth asking for.What to watchFour things settle how much this matters.First, whether the 2041 date survives into the final legislation. The draft is a proposal, and Reuters has seen it rather than the government publishing it.Second, whether the successor to the PLI ties benefits to component localisation with enough force to move value addition above 16 per cent.Third, whether Apple commits new Indian capacity on the back of the longer window, and whether other foreign firms follow. Watch the Bengaluru plant's completion schedule, pointed today at December 2027, and any announcement of a fourth assembly site.The signal to look for on components is different. A machinery exemption matters to a firm deciding where to place a $2 billion tooling investment. It matters far less to a mid-sized Taiwanese or Korean parts supplier weighing whether to open an Indian plant, and those suppliers decide whether the 16 per cent value-addition figure moves.Fourth, the tariff gap between India and China on US-bound shipments, which does more to determine where iPhones get built than any Indian tax provision.One further test applies to the whole policy. India has spent a decade using duties and incentives to move assembly onshore, and that worked. Moving the components onshore is a harder problem, because it needs chemical plants, precision tooling suppliers and materials capability rather than assembly halls and trained hands.The machinery exemption helps with the first kind of investment. Whether it does anything for the second depends on whether component makers themselves qualify as contract manufacturers inside bonded zones, and the draft language points at electronic goods rather than at parts.India gets something back for the concession, and the trade is worth stating in full. Fifteen years of tax certainty buys the country a manufacturing base that now sits at a quarter of global iPhone output, employs tens of thousands of people, and produces the largest single item in its export book. What it fails to buy, on its own, is a bigger share of what each device is worth.Apple has spent nine years asking Indian governments for this treatment. Tim Cook first raised a version of it with Narendra Modi in 2016, when the ask was a fifteen-year tax holiday and a panel of ministries turned it down. The company got the fifteen years in the end, on a narrower question, after building the factories first. FAQsWhat has India proposed?Extending a tax exemption for foreign companies that supply machinery to Indian contract manufacturers. The new end date is 31 March 2041, against 2031 today.Why does this help Apple?Apple owns the iPhone tooling its Indian partners use. Absent the exemption, that ownership risked counting as a taxable presence in India.What is a business connection?A link that lets India tax a foreign company's profits earned here. Apple feared its machinery on Indian factory floors would create one.Who else qualifies?Any foreign company supplying equipment to an Indian contract manufacturer inside a customs bonded zone, where the foreign firm keeps ownership and the Indian firm keeps control.Any foreign company supplying equipment to an Indian contract manufacturer inside a customs bonded zone, where the foreign firm keeps ownership and the Indian firm keeps control.About $30 on a $1,000 device, by GTRI's breakdown. Counterpoint puts local value addition across the mobile sector near 16 per cent.How many iPhones does India make?Around 26 per cent of global output in 2026, against 6 per cent four years earlier.Is this final?Still a draft. Reuters has seen it, and the date has to survive into the enacted legislation.end of article
