India Proposes Tax Relief Extension for Contract Manufacturers

India has proposed extending tax exemptions until 31 March 2041 for foreign companies that supply machinery to contract manufacturers in the country, as per a Reuters report.  

The proposal is part of a draft amendment to the Income Tax Act and will take effect only after it is approved by both Houses of Parliament.  

The exemption was introduced in February this year and was scheduled to remain in place until 2031. The latest proposal extends the benefit by another decade for eligible foreign companies involved in electronics manufacturing. 

Apple Among Companies Set to Benefit 

The proposed changes come as Apple continues to increase iPhone production in India. The company had sought changes to tax rules over concerns that machinery provided to its contract manufacturers could be treated as creating a taxable business presence in the country. 

Apple has been expanding manufacturing outside China in recent years. According to Counterpoint Research, India is expected to produce 26% of global iPhones in 2026, compared with 6% four years ago. 

Coverage Expanded to Components and Warehousing 

The draft bill covers manufacturers of mobile phones, tablets, laptops, hearing devices, and wearable electronics. It also proposes tax relief on income earned by foreign companies from storing and supplying components used in manufacturing these products. 

The exemption will apply to factories and warehouses located in customs-bonded areas, which are treated as being outside India's customs territory.  

Goods exported from these facilities will qualify for the benefit, while products sold within India will continue to attract applicable import duties. 

Data Centres Included in Proposal 

The government has also proposed changes for foreign companies using data centres in India. Earlier this year, India announced a tax exemption until 2047 for overseas companies using Indian data centres to serve global customers. 

The latest proposal allows Indian partners to lease data centre facilities instead of owning them. The draft legislation also includes a 15-year tax exemption for foreign diamond miners and traders selling rough diamonds through designated trading zones in India. 

Read More: CERC Proposes Transmission Fee Relief for Delayed Renewable Projects! 

Conclusion 

If passed, the proposed amendments will extend tax benefits for eligible foreign companies until 2041 while introducing changes for data centres and designated diamond trading zones. 

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