India’s government has handed Apple a decisive policy advantage by eliminating a persistent tax barrier that previously slowed the ramp-up of iPhone assembly in the country.
Announced as part of the 2026-27 Union Budget presented on 1 February, the reform allows foreign enterprises to supply capital goods, machinery, equipment or tooling to Indian contract manufacturers in customs-bonded, export-oriented zones for five years without generating taxable income in India. The exemption covers income derived specifically from such provisions to resident Indian companies engaged in electronics production. “This exemption removes a key deal-breaking risk for electronics manufacturing in India,” said Shankey Agrawal, a partner at the tax advisory firm BMR Legal.
Apple previously faced a stark contrast with its established operations in China, where it could furnish advanced production tools to partners with relative ease and minimal tax complications. In India, however, supplying equipment risked creating a “business connection” under income tax provisions, potentially exposing the company to taxation on profits from iPhone sales across the Indian market. This uncertainty forced partners such as Foxconn and Tata to bear the enormous capital outlay, often in the billions, for the precision machinery required for high-volume output.
Apple executives had lobbied consistently for this alignment with global practices, maintaining that the uncertainty deterred rapid capacity expansion. The new policy delivers the regulatory predictability they sought.
Revenue Secretary Arvind Shrivastava explained the rationale during the post-budget briefing: “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.”
The exemption applies exclusively to export-focused facilities in bonded zones and runs through the 2030-31 tax year. Goods produced in these setups and sold domestically remain subject to standard import duties, preserving the emphasis on overseas markets.
This adjustment lowers barriers for Apple and other multinationals viewing India as a strategic diversification hub beyond China. It enables faster deployment of sophisticated production lines, which could boost output volumes, reduce lead times and strengthen supply chain resilience against disruptions.
Business leaders in any industry often hesitate on major investments when fiscal uncertainties loom; removing that risk propels decisions forward. The move may attract increased foreign direct investment into advanced manufacturing, creating jobs, building local skills and deepening India’s role in global electronics over the coming years.
Author:Oje. Ese