Electronics Contract Manufacturing – India Simplifies It for Foreign Companies

A More Flexible Contract-Manufacturing Model

For many foreign companies looking at the possibility of contract manufacturing in India, a key question is: can they manufacture in India without transferring  ownership of proprietary or expensive tools, machinery and component inventory into an Indian entity? The new income-tax relief is important because it makes that operating model easier to consider.

1. Foreign-Owned Tools And Equipment

From tax year 2026-27, qualifying income of a foreign company from providing capital goods, equipment or tooling to an Indian contract manufacturer can be exempt from Indian income tax. The relief is available up to 31 March 2041.

The conditions are as follows. The foreign company must continue to own the assets. The Indian manufacturer must use them in an approved section 65 bonded facility. And the manufacturing must relate to specified electronic goods.

Note that if the foreign company provides tools without a separate charge, there may be little income to exempt. Even so, the provision helps because it recognises a structure that many global manufacturing groups already prefer commercially.

2. Customs And GST Still Matter

The income-tax exemption does not, by itself, remove customs duty or GST. A section 65 bonded facility generally gives duty deferment: imported capital goods and inputs can enter the bonded area without upfront customs duty and import IGST while they remain there.

If goods are exported, the deferred duty may generally not be payable. If goods or equipment are cleared into India’s domestic market, applicable duties and GST will need to be considered.

3. Components Can Be Stored Closer To Production

From 1 October 2026, a separate relief covers qualifying income of a foreign company from storing components in a customs-bonded warehouse and selling them to the Indian contract manufacturer for making specified electronic goods.

The relief has no onerous conditions attached. The law does not prescribe a minimum value-addition percentage, and it does not require the finished goods to be exported. That makes the structure relevant not only for export-led manufacturing, but also for businesses considering India-market production.

4. Who Can Use The Structure

The relief is aimed at specified electronic goods, including mobile phones, laptops, tablets, servers, certain computer devices, sub-assemblies, hearables, wearables and related accessories.

The bonded facility can be part of the manufacturer’s own premises, but it must be formally licensed as a private bonded warehouse with manufacturing permission under section 65 of the Customs Act.