India is set to prolong tax incentives favorable to Apple for contract manufacturing.

      India aims to continue attracting Apple’s manufacturing operations. The government has proposed an extension of a tax exemption for foreign companies supplying manufacturing equipment to contract manufacturers, specifically targeting iPhone assembly.

      According to a draft bill reviewed by Reuters, this tax exemption would be effective until 31 March 2041, significantly beyond the 2031 endpoint established when the initiative was initially introduced in February.

      This exemption would relieve foreign suppliers from Indian taxes on advanced machinery provided to assemblers like Foxconn and Tata. This initiative is part of a series of incentives India has implemented to encourage electronics production domestically, including a five-year manufacturing subsidy aimed at iPhone and Samsung producers, as well as broader industrial assistance. The main goal is to make manufacturing phones in India more cost-effective than importing them.

      The draft addresses a common issue in contract manufacturing. Assembly facilities frequently utilize equipment owned by foreign parents or partners, and without an exemption, this arrangement could lead to tax liabilities in India, creating friction that makes companies reconsider the location of their operations.

      The bill extends beyond smartphones, also encompassing tablets, laptops, and wearables, and introduces exemptions for storing and supplying components in customs-bonded zones that are technically outside of India's customs boundaries.

      Additionally, there is a provision related to data centers. Foreign firms would be permitted to lease data centers in India instead of owning them while still retaining their tax exemptions, a provision set to last until 2047.

      India's desired outcome is evident in production figures. The country produced approximately 6% of the world’s iPhones in 2022 and is projected to account for around 26% by 2026, transforming its role from a minor player to a central part of Apple’s supply chain.

      This transition away from China is the primary focus. Apple has been relocating iPhone production from a single country for several years, influenced by tariffs, geopolitical issues, and risks of overconcentration, with India emerging as the largest beneficiary from this shift.

      Apple now assembles a broader range of iPhones in India, including higher-end Pro models that previously were produced only in China. A substantial portion of this output is exported, reinforcing India’s position as a manufacturing center rather than solely a market.

      Other countries are also vying for this manufacturing work. Vietnam has increasingly taken on a larger share of Apple’s assembly, making the incentives as much about maintaining current operations as they are about expanding them. A decade-long tax horizon is a competitive advantage that is difficult for rivals to match.

      New Delhi has supported this initiative, recently eliminating import duties on electronics and battery inputs and committing $20 billion to develop domestic chip and smartphone manufacturing, a part of Prime Minister Narendra Modi’s ongoing efforts to establish a local manufacturing base.

      The previous version of the bill already allowed foreign companies to finance equipment for Indian factories without incurring tax penalties, which is a change Apple advocated for. Extending this exemption to 2041 transforms a temporary concession into a longer-term plan for suppliers to anticipate significant expenditures.

      Analysts view this extension as more than just a subsidy. Riaz Thingna, a partner at Grant Thornton Bharat, emphasized that the certainty it provides is its true value, offering suppliers a long timeframe to plan their investments.

      Apple’s supply chain in India is expanding quickly enough to encounter its own challenges. A recent data leak from Tata revealed a list of iPhone suppliers, highlighting that relocating production also carries associated risks.

      The bill still requires parliamentary approval before it can become law, so its timing will depend on New Delhi’s legislative schedule instead of Apple’s product timeline.

      For Apple, the essential aspect is the security of direction. India has dedicated two years to becoming a favorable location for iPhone production, and the latest draft signals its intention to continue this momentum.