NEW DELHI: Apple is lobbying India to modify a key income tax law that could impose heavy taxes on the company’s profits due to ownership of iPhone manufacturing machinery — a potential hurdle to its future expansion in one of its fastest-growing markets, according to sources familiar with the discussions.
The lobbying efforts come as Apple increases its presence in India, seeking to diversify its supply chain beyond China. According to Counterpoint Research, Apple’s market share in India has doubled to 8 percent since 2022. While China continues to dominate with 75 percent of global iPhone shipments, India’s share has quadrupled to 25 percent during the same period.
India is currently the world’s second-largest mobile market, and Apple’s contract manufacturers — Foxconn and Tata — have collectively invested billions of dollars in five manufacturing plants. Much of that spending has gone into purchasing specialized machinery used for assembling iPhones.
Apple’s Tax Dilemma in India
Experts warn that Apple could face billions of dollars in additional taxes under India’s Income Tax Act of 1961, which considers foreign ownership of equipment used locally as a “business connection.” This classification would make Apple’s iPhone profits taxable in India.
In China, Apple provides manufacturing machinery to its contractors but retains ownership, without facing any local tax liability. However, this arrangement is not permissible under Indian tax law.
A senior government official and two industry insiders told Reuters that Apple has held multiple rounds of discussions with Indian authorities, urging them to amend the law. The company fears that unless the issue is resolved, it could restrict its capacity to scale up production in India.
“Contract manufacturers cannot put up money beyond a point,” one industry source said. “If this legacy law is amended, Apple can expand faster and make India more competitive globally.”
India’s Cautious Response
India’s government, while open to dialogue, remains cautious. A senior Indian official confirmed that “discussions on taxation rules impacting Apple are ongoing”, adding that any legislative change must carefully balance investment promotion with India’s sovereign right to tax foreign entities.
“It’s a tough call,” the official said. “Apple’s growing investment in India is vital, but so is ensuring fair taxation.”
Prime Minister Narendra Modi’s government has prioritized smartphone manufacturing as part of its “Make in India” initiative. However, the deputy IT minister warned last year that China and Vietnam could overtake India as major smartphone export hubs due to their lower tariffs and simpler tax structures.
Legal Background and Tax Implications
The Apple lobbying India debate has drawn comparisons to a 2017 Supreme Court ruling involving Formula One (F1), where the court held that the UK-based F1 organization was liable to pay Indian taxes during the days it controlled the New Delhi race circuit.
Legal experts say that if Apple owns the manufacturing equipment in Indian factories, it could be interpreted as exercising “control” — making it liable for tax on profits derived from Indian operations.
“If Apple’s operations are viewed as a business connection, then its global revenues could be used to compute income taxable in India — exposing the company to billions in liabilities,” said Riaz Thingna, partner at Grant Thornton Bharat LLP.
Foxconn and Tata’s Expanding Role
Apple’s leading manufacturing partners in India, Foxconn and Tata Electronics, have already invested over $5 billion to boost local production. Customs data shows that Foxconn shipped $7.4 billion worth of Apple products by August this year, nearly matching its total shipments for all of 2024.
Despite Apple’s tax challenges, other global smartphone brands have navigated the Indian legal framework more easily. Samsung, for instance, manufactures nearly all its devices in wholly-owned Indian factories and is not affected by this tax provision.
Industry Representation and Lobbying Efforts
The India Cellular & Electronics Association (ICEA), which represents companies including Apple, has submitted a confidential recommendation to the government urging an amendment to the law. It emphasized that “tax certainty is paramount for businesses seeking to expand and scale.”
“Typical contract manufacturers are unable or unwilling to invest in large quantities of specialized equipment,” ICEA noted. “The cost of such machinery can run into billions of dollars, and in many cases, it is supplied free of cost by global companies.”
Neither Apple nor India’s IT and Finance Ministries have publicly commented on the matter.
Outlook: India’s Balancing Act
Apple’s lobbying in India highlights the delicate balance between attracting foreign investment and safeguarding tax revenues. For New Delhi, changing the law could accelerate the country’s emergence as a global manufacturing hub. However, any amendment risks setting a precedent that weakens India’s control over foreign taxation rights.
With Apple’s retail presence expanding — including multiple Apple Stores opened since 2023 — the outcome of these talks could determine how fast the tech giant scales its Indian operations.
As India weighs its options, both sides appear to agree on one thing: a clear, investor-friendly tax framework will be essential for making India a key manufacturing base in Apple’s global supply chain.
