Finance Minister Nirmala Sitharaman presented a major policy victory for multinational IT companies like Apple in her Budget 2026 speech on February 1.
Apple and the Five-Year Tax Exemption
International corporations can now provide machines to local contract manufacturers for up to five years without incurring additional tax liabilities.
In an effort to lessen its reliance on China, Apple has been increasing its footprint in India over the past few years. Since 2022, the iPhone’s market share in India has doubled to 8%, according to Counterpoint Research. India’s contribution has increased four times to 25% since 2022, but China still contributes for 75% of all iPhone exports worldwide.
Apple had been pleading with the Indian government to amend its income tax regulations so that the business would not be subject to taxes just because it is the owner of the pricey iPhone manufacturing equipment that it provides to its contract manufacturers.
Concerns Over Tax and Business Link
Unlike in China, Apple was concerned that paying for the machinery used by its contract manufacturers may be regarded by Indian law as a “business link,” which could result in taxes on its revenues from iPhone sales. According to a Reuters story, this danger drove Foxconn and Tata, Apple’s contract manufacturers, to invest billions of dollars in their own machinery.
FM Sitharaman stated on Sunday that India is changing the law “to stimulate manufacturing of electronic goods for a contract manufacturer” in order to prevent foreign companies from paying taxes simply for owning machines in India.
By paying for the hefty initial cost of machinery, this action may encourage Apple and other multinational corporations to invest in electronics production in India more swiftly, relieving their local contract manufacturing partners of some of the financial strain.
Government Statements and Policy Details
“We are stating that if you bring your machine, and that machine is used by a local firm to produce something, we will exempt you for 5 years. At a press conference following the budget, Revenue Secretary Arvind Shrivastava stated, “We are giving them certainty.” A key component of Prime Minister Narendra Modi’s strategy to spur economic growth is increasing the production of smartphones.
Only factories located in customs-bonded areas will be subject to the regulation change, which will be in effect until the 2030–31 tax year. Technically speaking, these regions are considered to be outside of India’s customs boundary. These facilities are primarily appropriate for export-oriented production because phones manufactured in these factories will be subject to import duties if they are sold within India.
In one of its explanatory budget documents, the Indian government said that “any revenue deriving on account of providing capital goods, equipment, or tooling to a contract manufacturer, being a company domiciled in India, is eligible for exemption.”
Competitor Comparison
Samsung, Apple’s South Korean competitor, was unaffected by the previous tax regulations since it uses its own factories rather than contract manufacturers to produce the majority of its phones in India.
Apple’s Tax Approach
As early as the 1990s, Apple, like many other US tech businesses, created extremely aggressive tax techniques by utilizing hybrid tax instruments and exploiting gaps in overseas tax regulations. Their profit-shifting tactic produced “stateless revenue,” or income that was not subject to taxation.
Is Apple opposing a potentially billion-dollar tax measure in India?
Apple (NASDAQ:AAPL) is fighting back in India, seeking a court to prevent a new antitrust rule that could leave the corporation facing a fine of up to $38 billion. The issue is a 2024 rule that lets regulators compute penalties using a company’s global revenue rather than just what it earns in India.
Why has Apple transferred 98% of its exports to the US from India?
Apple’s iPhone exports from India to the US totaled 97.6% of total iPhone exports in March 2025, jumping from 81.9% in the December-February 2025 timeframe. The goal of this change was to prevent higher import taxes from China.
What is Apple’s approach in India?
Strengthening ties with regional manufacturers and suppliers like Foxconn and Tata Electronics is part of Apple’s business plan in India. These collaborations make use of the infrastructures and knowledge already in place, enabling quick expansion of operations.
How did Apple evade taxes?
In fact, the tax structure in Ireland enabled Apple to evade taxation on practically all earnings earned by sales of Apple products in the entire EU Single Market. This is because Apple chose to track all sales in Ireland instead of the nations in which the goods were sold.
📈 Apple iPhone Production Support
- Policy: 5-year tax exemption on machinery
- Impact: Reduces financial burden on local manufacturers
- Focus: Bonded factories for export-oriented production
- Goal: Expand Apple’s footprint and production speed in India
Frequently Asked Questions
1. What is the five-year tax holiday that Budget 2026 announced?
Foreign businesses that provide machinery to local contract manufacturers for the production of electronic goods are exempt from paying taxes in India for a maximum of five years. This regulation only applies to factories located in customs-bonded zones and is valid through the 2030–31 tax year.
2. In particular, how does this help Apple?
Apple can now supply its Indian contract manufacturers, including Foxconn and Tata, with iPhone-making machinery without paying taxes. This encourages quicker investment and growth of iPhone production in India by removing a significant financial and legal obstacle.
3. What made Apple wary about producing in India in the past?
Apple was concerned that possessing pricey iPhone manufacturing equipment may establish a “business link” and result in income taxes on its Indian sales under previous Indian tax regulations. This compelled contract manufacturers to spend billions themselves, slowing down Apple’s expansion.
4. Will this rule effect Apple’s sales in India?
The program primarily encourages bonded factories to produce goods with an eye toward exports. These firms produce phones primarily for export because selling them domestically could still result in import taxes. However, it enhances Apple’s manufacturing foothold in India and indirectly promotes local sales growth.
5. How does this action fit into India’s overall plan?
Increasing the production of gadgets and smartphones is consistent with Prime Minister Modi’s strategy to promote economic expansion and lessen reliance on imports. By encouraging international tech companies like Apple to invest in India, the program boosts local manufacturing capacity and creates jobs.
💡 Apple Investment Incentive in India
- Benefit: Encourages faster electronics production
- Target: Local contract manufacturers like Foxconn & Tata
- Result: Strengthens India as a global IT manufacturing hub
- Long-term: Supports export growth and domestic market expansion
Conclusion
The 5-year tax break considerably de-risks Apple’s investment in India, making it cheaper and easier to grow local iPhone manufacture. By reducing tax obstacles on machinery, India positions itself as a formidable alternative to China for global IT production.
While the immediate focus is on exports, the legislation might also boost Apple’s booming domestic market, which has already doubled its share to 8% since 2022. All things considered, this action improves India’s electronics industry and increases its appeal to foreign investors.
Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Readers should verify facts independently before making decisions.
