India is set to extend tax exemptions until March 31, 2041, for foreign companies that provide machinery and components to contract manufacturers within the country. This proposed amendment, outlined in a draft tax bill, is a significant win for companies like Apple, which had previously lobbied the Indian government to modify its income tax laws. The initial tax exemption, introduced in February, was only valid until 2031, but Apple had concerns about being taxed on the ownership of high-end manufacturing equipment supplied to its Indian partners, a practice that could be seen as a "business connection" in India's tax laws.
The extended tax breaks will apply to manufacturers of various electronic goods, including mobile phones, tablets, laptops, hearing devices, and wearable electronics. Additionally, foreign companies will be exempt from tax on income derived from storing and supplying parts used in the manufacturing of these electronic components until 2041. This rule is particularly relevant for factories and warehouses established in customs-bonded areas, which are technically considered outside India's customs border, making them attractive for export-oriented production, as sales within India would still incur import taxes.
The move is part of India's broader strategy to attract foreign investment, enhance its position as an electronics manufacturing hub, and strengthen supply chains. Industry experts, such as Riaz Thingna, a partner at Grant Thornton Bharat, note that these changes will allow foreign companies to store and transfer critical equipment and components in India, mitigating supply chain disruptions and providing greater tax certainty. India is rapidly expanding its role in global electronics manufacturing, with Counterpoint Research projecting that the country will produce 26% of the world's iPhones by 2026, a substantial increase from 6% four years prior. The draft bill also includes provisions for easier tax exemptions for foreign companies utilizing data center services and a 15-year tax exemption for foreign diamond miners and traders.
