Tax Exemption for Foreign Suppliers to Contract Electronics Manufacturers Proposed to be Extended to 2041
The government has proposed extending, until 31 March 2041, a tax exemption for foreign companies that supply capital goods, equipment, or tooling (such as high-value machinery) to Indian contract manufacturers of electronic goods.
The exemption covers manufacturers of mobile phones, tablets, laptops, and wearable and hearing devices operating out of customs-bonded manufacturing facilities.
It also extends to income earned by foreign companies from storing and supplying electronic components through customs-bonded warehouses.
The exemption was originally introduced with a sunset of tax year 2030-31; the proposed extension pushes this out by roughly a decade.
The change is expected to benefit global electronics brands that supply machinery to their Indian contract manufacturing partners without owning manufacturing operations directly in India.
"Business Connection" under Section 9 of the Income-tax Act
Section 9 of the Income-tax Act deems certain income to accrue or arise in India even if earned by a non-resident, including income arising through a "business connection" in India. Historically, a foreign company that retained ownership of high-value machinery placed with an Indian contract manufacturer risked being treated as having a business connection in India, exposing its global profits attributable to that connection to Indian tax.
Key Details
- Section 9(1)(i) is the key deeming provision for business connection, property, or asset situated in India
- A specific carve-out (inserted via Schedule IV amendments to the income-tax law) exempts a foreign company's income from supplying capital goods/equipment to a resident contract manufacturer operating in a customs-bonded area, provided the manufacturer produces electronic goods for the foreign company for consideration
- The exemption was first introduced with a 2030-31 sunset; the current proposal extends it to 2041 and expands coverage to related component storage/supply income
This bridge is the legal mechanism directly at issue — the proposed Bill amends the "business connection" carve-out so that global electronics companies (widely reported to include Apple) are not taxed in India merely for owning machinery used by their Indian manufacturing partners.
Income-tax Act, 2025 (replacing the Income-tax Act, 1961)
The Income-tax Act, 2025 is a re-enacted, simplified version of India's direct tax law, coming into force from 1 April 2026 and repealing the Income-tax Act, 1961. It retains the same tax rates, slabs, and major reliefs while consolidating and renumbering provisions (reducing the statute from 819 sections to 536) for clarity.
The proposed extension to 2041 is being carried out through the newly restructured Income-tax Act, 2025 framework rather than the erstwhile 1961 Act, making this a live example of how sector-specific exemptions are now housed in the new code.
MOOWR: Manufacture and Other Operations in Warehouse Regulations, 2019
MOOWR is a customs facilitation scheme administered by the Central Board of Indirect Taxes and Customs (CBIC) that allows manufacturers to import capital goods and inputs into a licensed bonded warehouse without upfront payment of customs duty, deferring duty until the finished goods are cleared (duty is waived entirely if goods are exported).
Key Details
- Introduced in 2019, superseding 1966-era warehousing regulations
- No export obligation is attached — output can be sold domestically on payment of applicable duty
- Electronics, given its import-heavy input structure (chips, displays, precision machinery), is among the largest beneficiary sectors
- Bonded manufacturing under MOOWR is the customs-side counterpart to the income-tax exemption described above — together they reduce the effective cost of importing high-value machinery for electronics assembly
The contract manufacturers benefiting from the proposed tax exemption typically operate under MOOWR-licensed bonded premises, so the income-tax and customs regimes work in tandem to make India-based contract manufacturing viable for global electronics brands.
- Proposed exemption sunset: extended to 31 March 2041 (from the earlier 2030-31 tax year cutoff)
- Sectors covered: mobile phones, tablets, laptops, wearable and hearing devices
- Also covers income from customs-bonded storage/supply of electronic components
- Amendment proposed to take effect 1 April 2026, applicable from tax year 2026-27 onward
- India's share of global iPhone production is estimated to rise to around 26% in 2026, from about 6% four years earlier, per industry research trackers