Apple boost? India proposes extending manufacturing tax benefits until 2041

Apple's operations in India could get a significant lift. India reportedly plans to extend tax benefits for contract manufacturing in the country through 2041. This measure could benefit Apple as it continues to expand iPhone production there.

According to a famous publication report, the proposal—part of a draft amendment to tax laws—aims to provide long-term tax certainty to foreign companies like Apple that supply machinery to their contract manufacturers in the country. Before analysing what this exemption actually means for Apple, it is worth noting that the changes will only take effect if approved by both houses of Parliament.

Tax benefits for Apple until 2041?

Under the draft bill, the extended exemption for equipment supplied to contract manufacturers would apply to companies involved in the production of mobile phones, tablets, laptops, headphones, and wearable electronic devices. The government has also proposed exempting—until 2041—income earned by foreign companies from the storage and supply of parts used to manufacture these products for their contract manufacturers in India.

India introduced the tax exemption for foreign companies in February of this year, valid until 2031, after Apple lobbied the government to amend income tax rules.

Apple had argued that ownership of the high-end machinery used to manufacture iPhones—supplied to its contract manufacturers in India—could be deemed a "business connection" under Indian tax laws, potentially exposing iPhone-related profits to taxation. Now, these same incentives could be extended until 2041, allowing the company to provide high-end equipment to its contractors without having to worry about income tax laws.

The proposal could also encourage other global companies to relocate similar machinery for their respective contractors.

India has become a major manufacturing hub for Apple as the company diversifies its production beyond China. According to Counterpoint Research, India is projected to manufacture 26% of the world's iPhones by 2026, up from 6% four years ago. Apple is expected to further expand iPhone manufacturing in the future, and tax exemptions could serve as an additional incentive.

Apple's decision to expand iPhone manufacturing in India has reportedly generated approximately 350,000 direct and indirect jobs in the country.

In terms of market share, Apple has also continued to grow in India's premium segment. Data shows that the iPhone 16 was the best-selling smartphone in the country last year.

What other measures are being proposed?

The proposed amendments also include tax benefits on income earned by foreign companies from storing and supplying components for electronics manufacturing, more flexible regulations for foreign companies using data centre services in India, and a 15-year tax exemption for foreign companies engaged in the extraction and trading of rough diamonds through designated trade zones.

India has also proposed changes for foreign companies using data centre services in the country. In February, the government announced a tax exemption until 2047 for foreign companies using data centres in India to serve global clients, addressing concerns that their global income could become taxable due to the use of such facilities. The latest bill allows for the leasing of data centres, rather than requiring them to be owned by the foreign companies' Indian partners.