India has moved to defuse a long‑running tax headache for global electronics brands by letting foreign companies fund factory equipment without triggering local income tax. The change, unveiled in the Union Budget 2026, effectively clears a path for Apple to bankroll high‑end machinery for its Indian partners while keeping the taxman at bay. It also signals how aggressively New Delhi now wants premium manufacturing, from iPhones to cloud infrastructure, inside its borders.
By carving out a five‑year exemption for foreign suppliers of production gear to contract manufacturers, the government is rewriting a rulebook that had forced local partners to shoulder billions of dollars in capital spending. I see this as less a one‑off concession to Apple and more a structural bet that India can anchor the next wave of global supply chains if it stops penalising the very investment it is trying to attract.
How India’s tax tweak rewires the iPhone supply chain
The core of the reform is simple: foreign firms that provide machinery to Indian contract manufacturers will not face income tax on that support for five years, as long as production happens in customs‑bonded facilities. Officials have framed the move as a way to give a “fillip” to toll or contract manufacturing in India, explicitly exempting overseas entities that supply equipment from tax liability on that support so they can fund high value tools without fear of local assessments, according to India exempts foreign. In practice, that means a company like Apple can ship and finance precision machinery for iPhone lines while keeping the income from those arrangements outside India’s tax net.
Until now, that risk had pushed Apple’s local partners to buy the equipment themselves, even when the technology and financing were orchestrated from Cupertino. Reporting on the budget notes that this structure had forced contract manufacturers such as Foxconn and Tata to spend billions of dollars on machines that Apple would typically own in other markets, a mismatch that slowed expansion and complicated balance sheets. By allowing the foreign brand to fund and own the equipment directly, India is aligning its tax regime with how global electronics supply chains already work elsewhere.
Apple’s long push for relief pays off
Apple has been lobbying for exactly this kind of clarity as it tries to turn India into a second major production base alongside China. The government itself has described the budget change as a major win for Apple, acknowledging that India’s decision on Sunday to let foreign companies provide machines to their contract manufacturers without creating a taxable presence removes a key barrier for the iPhone maker, according to India’s government. Apple had also pressed New Delhi for a broader package of incentives to deepen smartphone manufacturing in India, and the new exemption is being read as a direct response to those demands.
The five‑year income tax holiday for foreign firms supplying machinery to contract manufacturers is explicitly framed as part of India’s 2026 Budget, with officials highlighting that the benefit applies when production occurs inside customs‑bonded areas, according to Key Points. In parallel, the Union Budget documents describe how India is handing Apple a win by letting foreign firms fund equipment for manufacturers while the machinery remains outside India’s customs border, a structure that keeps the assets offshore for tax purposes even as they sit on Indian factory floors, as detailed in Union Budget. For Apple, that structure mirrors arrangements it uses in other manufacturing hubs and removes a lingering uncertainty that its India operations could be dragged into local tax disputes.
Why New Delhi is betting on foreign‑funded machinery
From the government’s perspective, the exemption is less about generosity to a single company and more about accelerating a broader industrial strategy. Finance minister Nirmala Sitharaman has positioned the change as part of a push to boost manufacturing in India, explaining that the policy will allow foreign companies to provide machinery to contract manufacturers without creating a taxable presence, which in turn should help scale up local production of electronics, according to Finance minister Nirmala. By removing the fear that equipment support could be interpreted as a permanent establishment for tax purposes, India is trying to make it easier for global brands to plug their standard operating models into Indian plants.
The 2026 Budget goes further by explicitly stating that India’s Budget Exempts Foreign Tech Firms from Tax on Machinery for Contract Manufacturers, a measure that officials say will prevent situations where overseas companies are forced to pay tax simply because they funded tools used by local partners, as outlined in Budget Exempts Foreign. I read this as a recognition that India cannot become a serious alternative to China if it insists that every piece of foreign‑owned machinery inside its borders automatically creates a taxable footprint. Instead, New Delhi is signalling that it is comfortable separating the physical presence of equipment from the tax status of the company that owns it, at least for a defined period.
Beyond Apple: a wider electronics and cloud play
Although Apple is the most visible beneficiary, the new rules are deliberately broad. Budget documents describe how the Union Budget 2026 eases tax norms for Apple and other electronics OEMs manufacturing in India, making clear that any foreign company supplying machinery to contract manufacturers in customs‑bonded zones is eligible for the exemption, according to Budget Eases Tax. That opens the door for other smartphone brands, chip packaging firms and component makers to replicate Apple’s model, letting headquarters finance cutting‑edge gear while Indian partners focus on operations and workforce.
The same budget that delivers this relief to electronics manufacturers also offers a 20‑year tax holiday to global cloud firms that set up data centres in India, a separate but related incentive that underscores how aggressively New Delhi wants digital infrastructure onshore, as detailed in India Offers. Taken together, the five‑year machinery exemption and the 20‑year cloud tax holiday sketch a coherent strategy: India wants both the physical factories that assemble devices and the digital backbones that power services to be built on its soil, and it is willing to trade near‑term tax revenue for long‑term industrial and data sovereignty gains.
The risks and rewards of a five‑year window
There are, however, trade‑offs baked into the design of the machinery exemption. By limiting the relief to five years, India is trying to balance investor certainty with fiscal caution, effectively giving companies a runway to set up and ramp production while reserving the right to revisit the tax treatment later. The policy is framed as a time‑bound exemption for foreign firms that supply machinery to contract manufacturers, with officials emphasising that the goal is to provide a targeted boost to manufacturing rather than a permanent tax holiday, as described in Policy change. I see that as a calculated bet that once supply chains are deeply embedded, companies will be less likely to pull out even if the tax environment tightens.
For now, the political calculus appears to favour bold incentives. India’s government has explicitly linked the machinery exemption and related manufacturing reforms to Prime Minister Narendra Modi’s agenda for economic growth, presenting them as tools to attract investment, create jobs and move India up the value chain in global trade, according to India. If Apple, Foxconn and Tata respond by rapidly expanding iPhone output and if other electronics and cloud players follow, the foregone tax on machinery income could look like a small price to pay for anchoring a new generation of high‑tech industry in India.
