India proposes extending tax breaks for contract manufacturing in a boost for Apple
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.
Key Details
- Effective date: 1 April 2026; the 1961 Act stands repealed from that date, subject to transitional/saving provisions for pending proceedings
- The Schedule housing sector- or activity-specific exemptions (including the contract-manufacturing carve-out) is a feature of this restructured Act
- The extension being proposed operates through an amendment to this Schedule
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