Apple lobbies India to change tax law seen hindering its expansion, sources say

Apple is lobbying India's government to modify its income tax law to ensure the company is not taxed for ownership of high-end iPhone machinery it provides to its contract manufacturers, an issue seen as a hurdle to its future expansion, sources say.

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

India is the world's second-largest mobile 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 the U.S. firm's iPhone profits liable for Indian taxes, said a senior government official and two other industry sources.

Apple executives have held talks with the Indian officials in recent months to tweak the law as it fears the current legislation could hamper its future growth, said the sources.

"Contract manufacturers cannot put up money beyond a point," said an industry source. "If the legacy law is changed, it will become easy for Apple to expand ... India can become more competitive globally."