India proposes tax relief extension until 2041 to boost electronics manufacturing

The proposed tax amendments aim to provide long-term certainty for global manufacturers supplying equipment and components to Indian contract manufacturers, reinforcing the country’s ambitions to become a leading export hub for electronics and smartphone production.

The Indian government has proposed extending key tax exemptions until March 31, 2041, for foreign companies supplying machinery and critical components to contract manufacturers in the country. The proposed amendments are designed to provide long-term tax certainty, strengthen India's position as a global electronics manufacturing hub and encourage multinational companies to expand their production footprint in the country.

The proposal, included in a draft amendment to the Income Tax Act, would replace the current sunset date of March 31, 2031, with a new deadline of March 31, 2041. However, the revised provisions will become effective only after receiving approval from both Houses of Parliament.

The tax exemption was first introduced earlier this year following industry representations seeking greater clarity on the tax treatment of manufacturing equipment supplied by overseas companies to their Indian contract manufacturing partners. The government now aims to provide a longer policy horizon to support sustained investments and reduce regulatory uncertainty.

Long-term policy certainty for global manufacturers

Under the proposed amendments, foreign companies supplying production equipment to contract manufacturers in India will continue to receive tax relief for another decade beyond the existing deadline. The move is expected to particularly benefit multinational electronics companies that rely on contract manufacturing models to produce devices for global markets.

Earlier, concerns had been raised that ownership of sophisticated manufacturing equipment deployed at contract manufacturing facilities could establish a taxable business presence in India under domestic tax laws. Such an interpretation could potentially expose profits earned outside India to local taxation, creating uncertainty for overseas manufacturers.

The draft amendments also seek to exempt foreign companies from tax on income generated through the storage and supply of components used in manufacturing mobile phones, laptops, tablets, wearable devices and hearing equipment. The exemption would remain available until 2041, provided these activities are carried out through contract manufacturing arrangements.

Export-focused manufacturing gets a boost

The proposed tax benefits will apply to warehouses and manufacturing units located in customs-bonded zones, which are treated as being outside India's customs frontier for import purposes. While products sold within the domestic market would continue to attract applicable import duties, the framework is expected to primarily support export-oriented manufacturing operations.

India has steadily strengthened its position in the global electronics supply chain as multinational companies diversify production beyond traditional manufacturing locations. Industry estimates from Counterpoint Research indicate that India is expected to manufacture around 26% of the world's iPhones in 2026, a significant increase from approximately 6% four years ago.

According to tax experts, the proposed amendments will enhance supply chain resilience by enabling foreign companies to position critical equipment and components closer to manufacturing facilities without triggering additional tax exposure. The measures are also expected to improve investor confidence, reinforce India's attractiveness as a global production base and support the country's long-term ambitions of expanding high-value electronics exports.