India proposes extending tax breaks for foreign companies supplying equipment to contract manufacturers

Proposed Tax Exemption Extension

A new draft amendment in India proposes extending a tax break for foreign companies that provide machinery and equipment to contract manufacturers. The current exemption, set to expire in 2031, would be prolonged until 2041. This prevents foreign companies from incurring Indian income tax solely due to owning equipment used by contract manufacturers within India.

Affected Industries and Locations

The extended tax exemption will apply to manufacturers of mobile phones, tablets, laptops, hearing devices, and wearable electronic devices. This rule specifically targets factories and warehouses established in customs-bonded areas, which are treated as being outside India's customs border. Devices sold domestically from these facilities would still incur import taxes, making them more attractive for export-oriented production.

Impact on Electronics Manufacturing

This move is significant for companies like Apple, which has been actively diversifying its supply chain to India. The extension follows earlier lobbying efforts by Apple for the initial tax exemption. India recently removed import duties of 5% and 7.5% on various components used in smartphone and electronics manufacturing, further supporting the country's role in global electronics production.

Strategic Importance for India

The proposed extension and previous policy changes underscore India's strategy to become a major hub for electronics manufacturing. Data indicates that India is projected to produce 26% of the world's iPhones by 2026, a substantial increase from 6% four years prior. These incentives aim to attract more foreign investment and manufacturing capabilities to the country.