India is considering extending tax exemptions through 2041 for foreign companies that supply machinery to contract manufacturers, a move that would benefit major technology firms like Apple as they expand production in the country. The proposal, outlined in a draft bill, aims to provide long-term tax certainty for businesses involved in India's growing electronics manufacturing sector.

The extension targets companies providing equipment to contract manufacturers of mobile phones, tablets, laptops, hearing aids, and wearable devices. Initially introduced in February 2023, the current tax break was set to expire in 2031. It was implemented after Apple lobbied the Indian government to revise income tax laws, addressing concerns that ownership of high-value machinery by foreign firms could be deemed a "business connection," potentially exposing them to Indian taxes on their iPhone profits.

India has rapidly increased its share of global iPhone manufacturing, with the nation expected to produce 26% of the world’s iPhones by 2026, compared to only 6% in 2022, according to Counterpoint Research. This growth is part of Apple’s diversification strategy to reduce reliance on China as a manufacturing hub.

In addition to the tax breaks for machinery providers, the draft legislation proposes exempting foreign companies from taxation on income earned from storing and supplying electronic components to contract manufacturers within India. This exemption will apply to operations based in customs-bonded areas, which are considered outside the country’s customs border and primarily serve export-oriented activities. However, if devices produced in these zones are sold domestically, they would be subject to import duties.

Tax experts suggest that these measures will help mitigate supply chain disruptions by facilitating the local storage and transfer of critical equipment and components. Riaz Thingna, a partner at Grant Thornton Bharat, noted that the proposed changes would offer foreign companies greater confidence amid evolving trade uncertainties.

Earlier in 2023, India also extended tax exemptions until 2047 for foreign firms operating data centers within the country. This policy was designed to ease concerns about potential taxation of global income for companies that use Indian-based data centers to serve international clients.

The draft bill will require approval from both houses of the Indian Parliament before becoming law. If enacted, the tax extensions are expected to strengthen India’s position as a key destination for electronics manufacturing and attract further foreign investment.