India Proposes Extended Tax Exemptions for Foreign Electronics, Data Center, and Diamond Companies

NEW DELHI: India has proposed extending tax exemptions until 2041 for foreign companies that provide machinery to contract manufacturers, handing a major win to Apple which had lobbied for such changes, and is fast expanding in the market.

India has been a key market for Apple as it diversifies iPhone manufacturing beyond China, and the South Asian nation is set to make 26% of the world's iPhones in 2026, up from 6% four years ago, according to Counterpoint Research.

According to a draft of the proposed tax amendments seen ‌by Reuters, "to provide (tax) ⁠certainty" the ⁠government has extended tax breaks until March 31, 2041 to foreign companies that provide equipment to their contract manufacturers in India.

India introduced the tax ​exemption for foreign companies in February, valid only until 2031, after Apple lobbied the Indian government to modify its income tax laws ​to ensure the company is not taxed for ownership of the high-end iPhone machinery it provides to its contract manufacturers.

Apple had feared that, unlike in China, tax laws in India could treat ownership of machinery supplied to its contract manufacturers ​as so-called "business connection", exposing its iPhone profits to tax.

TAX BREAK FOR STORING COMPONENTS

The ⁠extended tax ‌exemption will apply to manufacturers of mobile phones, tablets, laptops, hearing and wearable electronic devices, ​according to the ​draft bill that will have to be passed by the lower and upper houses of ⁠parliament.

India has also exempted from tax foreign companies' income from storing and providing ​parts used to manufacture such electronics components to contract manufacturers until 2041.

The rule ​will apply for factories and warehouses set up in so-called customs-bonded areas - which are technically considered being outside India's customs border. If devices are sold within India from such factories, they will attract import taxes, making such facilities attractive only for exports.

"The proposed tax changes will enable foreign companies to store and transfer critical equipment and components in India for their contract manufacturers, helping mitigate supply chain disruptions arising from trade uncertainties while providing greater tax certainty," said Riaz Thingna, ‌a partner at Grant Thornton Bharat.

DATA CENTERS

India has also proposed to make it easier for foreign companies that use data center services in the country to make use of tax exemptions.

India in ​February announced a ​tax exemption until 2047 for foreign ⁠companies using data centers in the country to provide services to global clients, addressing concerns that New Delhi could in future tax their global income for using such facilities.

The bill now allows data centers to be leased, rather than ​be owned by the Indian partners of foreign companies.

Allowing Indian partners to lease, rather than own, data centers will lower capital requirements and make it easier for smaller and mid-sized players to enter the market, said Thingna from Grant Thornton Bharat.

Separately, India has also proposed a 15-year tax exemption for foreign diamond miners and traders that sell rough diamonds through designated trading zones in the country. India is already the world's largest diamond-cutting and polishing centre.