The Union Budget 2026 has delivered a major policy boost to global electronics manufacturers, particularly Apple, as India sharpens its push to become a global manufacturing hub. In her Budget speech on February 1, Finance Minister Nirmala Sitharaman announced a key tax reform that allows foreign companies to provide machinery to Indian contract manufacturers for up to five years without triggering additional tax liabilities.
The move removes a long-standing concern for Apple, which has been steadily expanding iPhone production in India as part of its strategy to diversify supply chains away from China.
Apple has significantly ramped up its India operations over the past few years. According to Counterpoint Research, Apple’s share of the Indian smartphone market has doubled to 8% since 2022, highlighting the company’s growing consumer presence in the country.
On the global manufacturing front, while China still accounts for 75% of global iPhone shipments, India’s contribution has surged, jumping four times to 25% since 2022. This rapid growth underscores India’s rising importance in Apple’s global production network.
Apple had been lobbying the Indian government to amend income tax provisions that posed potential risks for foreign companies supplying high-value machinery to local contract manufacturers.
Unlike China, where similar arrangements do not attract such concerns, Apple feared that owning expensive iPhone manufacturing equipment in India could be interpreted as creating a “business connection” under Indian tax law. This could have exposed the company to taxes on profits from iPhone sales in India.
Because of this uncertainty, Apple’s key contract manufacturers—Foxconn and Tata—were compelled to invest billions of dollars themselves in production machinery, according to a Reuters report.
Addressing this issue, Finance Minister Nirmala Sitharaman said on Sunday that “to promote manufacturing of electronic goods for a contract manufacturer”, India is amending the law to ensure that mere ownership of machinery in India does not lead to tax liabilities for foreign companies.
The change provides Apple and other global firms with legal clarity and removes a significant barrier to scaling up investments.
The new provision is expected to accelerate investments in India’s electronics ecosystem by allowing foreign companies to directly bear the high upfront cost of advanced manufacturing equipment. This eases the financial burden on Indian contract manufacturers and improves operational efficiency.
At a post-Budget press conference, Revenue Secretary Arvind Shrivastava said, “We are saying that if you bring your machine, and that machine is used by a local manufacturer to produce something, we will exempt you for 5 years. We are giving them certainty.”
Boosting smartphone and electronics manufacturing is a core pillar of Prime Minister Narendra Modi’s broader strategy to drive economic growth, exports, and job creation.
The tax exemption will remain in force until the 2030–31 tax year and applies only to factories located in customs-bonded areas. These zones are treated as being outside India’s customs territory.
Phones produced in these facilities will attract import duties if sold domestically, making such units primarily suitable for export-oriented manufacturing.
In one of its explanatory Budget documents, the government clarified that “Any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India, is eligible for exemption.”
The earlier tax rules did not pose challenges for Apple’s South Korean rival Samsung, as most of Samsung’s smartphones sold in India are manufactured at company-owned factories rather than through third-party contract manufacturers.
Apple’s reliance on contract manufacturing made it uniquely vulnerable to the earlier tax interpretation, which this reform now addresses.
The five-year tax exemption on machinery supplied to contract manufacturers marks a decisive step in India’s effort to attract high-value electronics manufacturing. For Apple, the policy removes a major regulatory hurdle, provides long-term certainty, and strengthens India’s role as a critical alternative to China in its global supply chain. As India continues to align fiscal policy with its manufacturing ambitions, the move is likely to unlock faster investments, deeper localisation, and stronger export-led growth in the electronics sector.