Budget 2026 Proposes Income Tax Exemption For Foreign Companies Supplying Capital Goods To Electronics Makers

The Union Budget 2026 has proposed an income-tax exemption for foreign companies supplying capital goods, equipment, or tooling to Indian electronic goods manufacturers operating in customs bonded warehouses under Section 65 of the Customs Act, 1962.

At present, Section 11 read with Schedule IV of the Income-tax Act specifies categories of income that are excluded from the total income of eligible non-residents, foreign companies, and specified persons. To promote electronic goods manufacturing in India and provide tax certainty to foreign suppliers, the government has proposed to amend Schedule IV to extend a specific exemption to foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers.

Under the proposal, income arising to a foreign company from such supply will be exempt from tax where the contract manufacturer is a company resident in India; the manufacturing activity is carried out in a customs bonded warehouse under Section 65 of the Customs Act, 1962; and the electronic goods are manufactured by the Indian entity on behalf of the foreign company for consideration.

The proposed exemption will be available up to tax year 2030–31, providing long-term certainty to foreign companies participating in India's electronics manufacturing ecosystem. The amendments are proposed to come into force from 1 April 2026 and will apply from tax year 2026–27 onwards.