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A draft law from New Delhi aims to extend the tax exemption for foreign manufacturing machinery by ten years. Apple itself lobbied for this. In addition, duty-free warehouses will be established – but only for devices that are leaving the country again.
India will manufacture 26 percent of all iPhones worldwide this year. Four years ago, it was six percent – hardly any shift in Apple's supply chain has occurred at a comparable pace. The draft legislation, reported by Reuters, aims to secure this growth in the long term. Just in July, the government eliminated tariffs on iPhone components; this new initiative goes significantly further.
The production figures show that the strategy is working: iPhone manufacturing is growing against the industry trend, while the smartphone market as a whole is stagnating. At the same time, an antitrust case is underway against Apple in India – so the country is not only a production hub for the company, but also a source of friction.
Key Facts at a Glance
- The tax exemption for machinery that foreign companies provide to their contract manufacturers is to run until March 31, 2041, instead of until 2031.
- It applies to manufacturers of smartphones, tablets, laptops, as well as hearing and wearable devices.
- A new tax exemption has been added for the storage of components in free trade zones – exclusively for export goods.
- The rules for data centers are also being relaxed: Indian partners will be allowed to rent instead of own in the future.
- The draft still needs to pass both houses of parliament.
What the tax exemption is about
The core of the dispute is a legal detail with significant implications. Apple provides its contract manufacturers in India with high-quality production machinery but remains the owner. Under Indian tax law, this ownership could be considered a "business connection"—and thus make Apple's iPhone profits taxable in the country.
This question doesn't arise in China. Apple had therefore urged the Indian government to amend its income tax laws. In February, New Delhi introduced a corresponding exemption, albeit only until 2031.
The new draft extends this deadline to March 31, 2041 – explicitly to create planning certainty. It doesn't just affect smartphones: the regulation also covers tablets, laptops, and hearing and wearable devices, thus encompassing virtually Apple's entire hardware portfolio.
Duty-free warehouses for export only
The second part of the draft concerns warehousing. Foreign companies should be able to store components tax-free and pass them on to contract manufacturers – also until 2041.
The prerequisite is that factories and warehouses are located in so-called free trade zones. For tax purposes, these zones are considered outside the Indian customs border, which is why goods imported there do not trigger any import duties. This remains the case when the finished devices are subsequently exported.
This is precisely the crucial point: if the devices are instead sold in India, import duties will apply as usual. Such locations are therefore only worthwhile for the production of export goods.
Data centers will also become simpler
A third point concerns digital infrastructure. Back in February, India had already promised foreign companies a tax exemption until 2047 if they used data centers in the country to serve customers worldwide.
The draft legislation now relaxes the ownership issue: data centers can be leased by Indian partners instead of requiring them to own them. This reduces capital requirements and opens the market to small and medium-sized providers. For Apple, it means more flexibility should the company wish to build its own capacity there.
| Control | Introduced | Previous deadline | Planned deadline |
|---|---|---|---|
| Machines at contract manufacturers | February 2026 | 2031 | March 31, 2041 |
| Storage of components in free trade zones | new in the design | – | 2041 |
| Data centers for global services | February 2026 | 2047 | 2047, now also rented |
Why the long time horizon is the real news
Ten additional years might sound like a mere formality, but it's anything but. Smartphone production lines take years to pay for themselves, and a tax break that expires in 2031 isn't a viable basis for investments extending into the 2030s. By 2041, the planning horizon shifts to a point where a second fully-fledged production site alongside China becomes financially viable.
The timing is also revealing. Apple itself warned of significantly larger supply bottlenecks in its outlook for the September quarter, citing component shortages. A second large manufacturing base with a long-term tax commitment is precisely the safeguard that matters in such a situation – even if it doesn't solve anything in the short term. In any case, the draft comes too late for the iPhone generation expected in September.
For buyers in Germany, Austria, and Switzerland, the draft legislation will not directly change price or availability. However, it is indirectly relevant: the free trade zone regulation makes the factories there attractive exclusively for export goods, and Europe is one of these target markets. Therefore, what rolls off the assembly line in India is not intended for the Indian market – but rather for markets like ours.
Until then, the draft remains just that. It must pass through both houses of parliament, a process that can take months. Until its adoption, the time limit of 2031 remains in effect. (Image: Apfelpatient)
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