Apple wants India to modify a tax law that hinders its expansion in the country

Apple Inc. is lobbying the Government of India to modify its income tax law to ensure that the company is not taxed for ownership of high-end iPhone machinery it provides to its contract manufacturers. That, Apple believes, hinders expansion in its fastest growing market.

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Apple in India iPhone manufacturing in India F1 tax rule for Apple?

Apple’s contract manufacturers Foxconn and Tata have pumped in billions of dollars to open five plants, but millions of those expenses go into acquiring pricey machines for iPhone assembly. (HT)

“Contract manufacturers cannot put up money beyond a point,” sources said. “If the legacy law is changed, it will become easy for Apple to expand…India can become more competitive globally.”

A senior government official said “discussions on the taxation rules impacting Apple are ongoing”, but New Delhi is cautious as any changes to the law could diminish its sovereign right to tax a foreign company.

“It’s a tough call,” said the government official, who highlighted that Apple’s increased investments are equally important. “India needs investments. We have to find a solution.”

Apple did not respond to Reuters questions, and neither did India’s IT and finance ministries who are involved in the discussions.

Apple in India

The push coincides with Apple’s growing presence in India as it diversifies beyond China. According to Counterpoint Research, iPhone’s market share in India has doubled to 8% since 2022. And while China still accounts for 75% of global iPhone shipments, India’s share has quadrupled to 25% since 2022.

India is the world’s second-largest mobile phone market.

Apple’s contract manufacturers Foxconn and Tata have pumped in billions of dollars to open five plants, but millions of those expenses go into acquiring pricey machines for iPhone assembly.

Experts say Apple potentially faces billions of dollars in additional taxes if it changes its business practices without convincing New Delhi to change a 1961 law covering foreign ownership of equipment used in India.

In China, Apple procures the machines used to make iPhones and gives them to its contract manufacturers, and is not subject to tax even though it still owns them.

But that’s not possible in India as the Income Tax Act would consider such ownership by Apple as a so-called “business connection”, making Apple’s iPhone profits liable for Indian taxes, said a senior government official and two other industry sources.

iPhone manufacturing in India

Smartphone manufacturing is a key plank of Prime Minister Narendra Modi’s ‘Make in India’ agenda. India’s deputy IT minister last year privately said that China and Vietnam could race ahead as major smartphone export hubs due to their lower tariffs on phone parts.

Taiwan’s Foxconn is Apple’s largest contract manufacturer in India, having shipped products worth $7.4 billion this year by August, compared to $7.5 billion in all of 2024, commercially available customs data shows.

Since 2023, Apple has opened a handful of directly-owned retail stores in India, though it also sells it products through online and offline distributors. Foxconn and Tata have over the years invested more than $5 billion in setting up manufacturing for various Apple products.

F1 tax rule for Apple?

One precedent of Indian law often cited by tax experts involves UK-based Formula One.

In 2017, the Supreme Court of India held that even though F1 did not own the Buddh International Circuit near New Delhi, it was liable to pay tax on profits for the days when it exerted full control during its Grand Prix India event.

If Apple were to own machines inside Indian iPhone factories, it would amount to exerting control under current laws, experts said.

“If the activities of Apple constitute a business connection, then the global revenue may be used as a basis to compute the income attributable in India, leading to billions in tax exposure,” Riaz Thingna, a partner at Grant Thornton Bharat LLP, told Reuters.

The income tax law, however, does not bother Apple’s South Korean rival Samsung Electronics Co. Ltd. as almost all of its phones are made in its own Indian factories.

The India Cellular & Electronics Association (ICEA), which backs Apple, has in a confidential representation to the government called for changes to the law, saying tax certainty is “paramount for businesses seeking to expand and scale”.

“Typical contract manufacturers are unable or unwilling to invest in such large quantities of specialized equipment… The cost of the equipment can rise to billions of dollars,” ICEA said, without naming any company. “In certain cases (it) may also be supplied…free of cost.”

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