This is a tax exemption that shields a foreign company from Indian income tax purely because it owns equipment supplied to, and used by, its Indian contract manufacturers.
Basic Details
Introduced: Announced by Finance Minister Nirmala Sitharaman in the Union Budget 2026-27, and enacted via an amendment to the Income-tax Act, 1961.
Legal Basis: Relates to Section 9 of the Income-tax Act, which defines when a foreign company is treated as having a taxable "business connection" in India.
Validity: Up to 31 March 2031.
What It Does
Normally, a foreign company could be treated as having a taxable presence in India if it owns high-value equipment used by its Indian contract manufacturers. This exemption removes that risk for equipment placed in designated customs-bonded manufacturing or warehousing areas, which are treated as outside India's customs border for this purpose. As a result, owning such equipment alone does not make the foreign company liable to Indian income tax.
Origin
The exemption followed representations from global electronics majors, notably Apple Inc. Apple had argued that its ownership of high-end manufacturing equipment, such as that used for iPhone assembly, supplied to Indian contract manufacturers like Foxconn and Tata Electronics, could otherwise be treated as a taxable presence in India, exposing its India-linked profits to tax.
Significance
Removes Tax Uncertainty: Addresses a specific barrier that had discouraged foreign electronics firms from transferring high-value manufacturing equipment to their Indian contract-manufacturing partners.
Complements Other Schemes: Sits alongside other instruments in India's electronics manufacturing push, including the Production Linked Incentive (PLI) Scheme for Large-Scale Electronics Manufacturing and the Electronics Component Manufacturing Scheme (ECMS).
Scale of Impact: Linked to India's rising share of global electronics assembly — India is projected to manufacture around 26% of the world's iPhones in 2026, up from about 6% four years earlier.