India hands Apple a win by letting foreign firms fund equipment for manufacturers

By Nikunj Ohri and Aditya Kalra

NEW DELHI, Feb 1 (Reuters) - India's government on Sunday handed a major win to Apple AAPL.O by allowing foreign companies to freely provide machines to their contract manufacturers set up in certain areas for five years, without fearing any tax risk.

Smartphone manufacturing is a key plank of Prime Minister Narendra Modi's agenda, but Apple had been lobbying India's government to modify its income tax laws to ensure the company is not taxed for ownership of 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 2317.TW 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 income or taxes on it.

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

FASTER SCALE-UP AND GREATER CONFIDENCE

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."

The decision comes as Apple has been growing in India as it diversifies beyond China. Counterpoint Research says iPhone's share in 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 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.

(Reporting by Aditya Kalra; Editing by Sonali Paul)

((Email: aditya.kalra@tr.com; X: @adityakalra;))