Exemption on owned equipment eases contract manufacturing, strengthens export-led supply chains
The Union Budget 2026-27 has delivered targeted tax relief for global electronics makers manufacturing in India. The government proposed easing rules that earlier taxed foreign companies for owning manufacturing equipment used by local partners.
The change directly benefits Apple, which had lobbied for clarity. Could this be the quiet policy shift that accelerates India’s role in global electronics supply chains?
What Changed In The Tax Law
Under the Income Tax Act, 1961, equipment owned by a foreign firm but located in India could be deemed a “business connection”, triggering tax on profits.
Finance minister Nirmala Sitharaman announced relief in Budget 2026-27:
Any income arising from providing capital goods, equipment, or tooling to an Indian contract manufacturer will be exempt from tax.
The exemption runs until FY31 (2030–31) and applies to Apple and other electronics OEMs. Why does this matter? It removes a major deterrent to foreign firms directly supporting factory expansion.
Why Apple Pushed For The Exemption
Apple supplies critical manufacturing equipment to its Indian partners Foxconn and Tata, both of which have invested billions in iPhone plants.
Without the exemption, Apple feared taxation on iPhone sales profits simply for owning that equipment. The relief now allows Apple to scale capacity without tax friction—like removing a handbrake just as speed is picking up.
Export-Linked, Not Domestic Relief
The exemption is not unconditional. It applies only to facilities located in customs-bonded areas, which are treated as outside India’s customs territory.
- Devices made there face import duties if sold domestically
- The benefit is effectively limited to export-oriented manufacturing
This design aligns incentives squarely with exports. Is India signalling that scale matters more than local sales—for now?
Supply Chain Diversification Gets A Boost
The policy fits neatly into Apple’s global diversification playbook. Manufacturing in India reduces reliance on China while keeping costs competitive.
Key context:
- Apple operates five iPhone factories in India—two via Foxconn, three via Tata
- From FY22 to December 2025, India exported over $50 billion worth of iPhones
- More than 20% of iPhones sold globally are now made in India
For Apple, India is no longer a backup—it’s a pillar.
Beyond Apple: Signal To The Electronics Ecosystem
The exemption also covers other OEMs, including Samsung, that own equipment used by Indian partners.
While smartphone PLI incentives end in March and were not renewed in this Budget, the government raised electronics component manufacturing investment to INR 40,000 Cr, a 75% jump.
The message is clear: move beyond assembly. Can India climb the value chain into components, tooling, and advanced manufacturing?
TL;DR
Budget 2026 exempts foreign electronics firms from tax on owning manufacturing equipment used by Indian partners. Apple benefits most, as it can now support Foxconn and Tata without profit tax risk. The export-linked relief strengthens India’s role in global electronics supply chains and supports deeper manufacturing ambitions.
AI summary
- Tax exemption announced for foreign-owned manufacturing equipment
- Apple avoids profit tax risk on iPhone equipment
- Relief applies to export-focused, bonded facilities
- Boosts Apple’s India supply chain strategy
- Signals push beyond assembly into electronics manufacturing
