What Budget 2026-27 means for Indian IT industry: 8 Biggest announcements

Union finance minister Nirmala Sitharaman today presented the Union Budget for the Financial Year (FY) 2026-27. The announcements includes significant measures for accelerating the growth of India's Electronics and Information Technology Sector. In a major push to attract global data centre investments, the government has proposed a 20-year tax holiday for foreign companies providing cloud services from India. Announcing the measure in her Budget 2026 speech, finance minister Nirmala Sitharaman said the incentive is aimed at drawing long-term capital and strengthening India’s rapidly expanding data centre ecosystem. Here are the 8 biggest announcements related to technology in the Union Budget 2026:

Launch of India Semiconductor Mission (ISM) 2.0

The Finance Minister announced the launch of India Semiconductor Mission (ISM) 2.0 to produce equipment and materials, design full stack Indian IP, and fortify supply chains. The focus will be on industry led research and training centres to develop technology and skilled workforce. Provision of Rs. 1,000 crores has been made towards this for FY 2026-27. ISM 1.0 has expanded India's semiconductor sector capabilities and ISM 2.0 will build on the same.




Outlay of Electronics Components Manufacturing Scheme (ECMS) increased

Union Budget 2026 proposes to increase the outlay of the Electronics Components Manufacturing Scheme (ECMS), launched in April 2025. The scheme launched with an outlay of 722,919 crore. It has now been proposed to increase the outlay to Rs 40,000 crore to capitalize on the momentum.

Companies offering IT service to be clubbed under single category

Recognising India as a global leader in software development services, Budget 2026 proposes a common category for all companies offering IT services, this includes IT-enabled services, Knowledge Process Outsourcing (KPO) services and contract R&D services relating to software development. Acknowledging the inter-connectedness of these business segments, the Budget has proposed to club all these services under a single category called 'Information Technology Services' A common safe harbour margin of 15.5 percent will be applicable to all.

New Safe Harbour provisions for IT companies

In order to support the IT sector as India's growth engine and to provide tax certainty, Budget 2026-27 has proposed new safe harbour provisions for IT/ITeS companies. The threshold for availing safe harbour for IT services is also proposed to be enhanced substantially from 300 crore rupees to 2,000 crore rupees. FM said that Safe harbour for IT services shall be approved by an automated rule-driven process without any need for a tax officer to examine and accept the application. Once applied by an IT Services company, the same safe harbour can be continued for a period of 5 years at a stretch at its choice.

Further, for IT services companies who want to conclude Advance Pricing Agreement (APA), it was proposed to fast track the Unilateral APA process for IT services and endeavour to conclude it within a period of 2 years. The period of 2 years can be extended by a further period of 6 months on taxpayer's request. Moreover, it is proposed to extend the facility of modified returns available to the entity entering APA to its associated entities also.

Offers tax holiday till 2047 to foreign companies who provide Cloud services from data centres in India

Recognising the need to enable critical infrastructure and boost investment in data centres, Budget 2026-27 has also proposed to provide tax holiday till the year 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. The company will, however, need to provide services to Indian customers through an Indian reseller entity. Further, a safe harbour of 15 percent on cost has also been proposed in case the company providing data centre services from India is a related entity. The provision is likely to benefit foreign cloud companies structuring their India operations through group entities by offering tax certainty and operational efficiency.

Content Creator Labs across schools and colleges

Budget underscores India’s Animation, Visual Effects, Gaming and Comics (AVGC) sector as a growing industry projected to require 2 million professionals by 2030.The Union Budget proposes to support the Indian Institute of Creative Technologies, Mumbai in setting up AVGC Content Creator Labs in 15,000 secondary schools and 500 colleges in furtherance of India’s Orange economy.

‘Bharat-VISTAAR’, a multilingual AI tool to enhance farm productivity announced

The Union budget proposes ‘Bharat-VISTAAR’(Virtually Integrated System to Access Agricultural Resources)—a multilingual AI tool that shall integrate the AgriStack portals and the ICAR package on agricultural practices with AI systems. This will enhance farm productivity, will lead to better farmer decision making and reduce risk through customized advisory support for the farmer.