India Removes a Barrier to Global Electronics Manufacturing

by Rajat Mohan May 31, 2026

By Rajat Mohan May 31, 2026 0 comments 3 minutes read

Rajat Mohan.

A long-standing tax ambiguity around foreign-owned equipment has now been addressed. This change could significantly influence how companies structure their operations in India, making the country a more predictable and attractive manufacturing destination.

Due to growing demand and its ever-evolving supply chains, India has been considered a potential manufacturing base by foreign companies.

Yet one critical piece remained missing- the machines.

Not because machines were unavailable with foreign companies, but because bringing them into India carried a hidden risk. If a foreign company supplied or retained ownership of its production equipment, it may be treated as having a taxable presence in India, and thus exposing a portion of its income to taxation in India.

That may now change.

With effect from April 1, 2026, the Government of India introduced a tax exemption for foreign companies.

The position is now clear. A foreign company providing capital equipment to a manufacturer, being a company resident in India operating within a customs bonded area, and such manufacturer company is engaged in the production of electronic goods on behalf of the foreign company. Any income arising from providing such capital equipment will be exempt from tax in India up to Tax Year 2030–31.

This relief, however, is subject to specific conditions. The ownership of such capital equipment remains with the foreign company, while the equipment should be under the control and direction of the Indian manufacturer to whom it is provided.

Before this exemption came into picture, supplying capital equipment in India resulted in uncertainty as to whether such an arrangement would become taxable in India on account of “business connection” or not, which also discouraged foreign companies from bringing their equipment into the country.

Now, by explicitly exempting such income, India is effectively separating equipment ownership from taxable presence, at least within the new framework.

At first glance, the change may seem small and technical. But its impact could be wider.

By providing tax exemption, India will be a more viable option for global manufacturers, including U.S. and UAE firms looking to expand or diversify their supply chain. But what if a foreign company expands its presence in India beyond this, then the answer is simple, its income is chargeable to tax at the normal rate.

But does it resolve the long-standing question:

Can companies bring their full manufacturing setup to India, including equipment, without unexpected tax consequences?

For the first time, the answer is clear, and that clarity could make a real difference.

This change may finally bring not just factories, but the machines behind them, to India.

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