FM Nirmala Sitharaman launches India Semiconductor Mission 2 in Union Budget 2026: Key points and what it means for IT industry

Finance Minister Nirmala Sitharaman launched the India Semiconductor Mission (ISM) 2.0, a programme for producing equipment and materials, designing full stack Indian IP and fortifying supply chains. The focus will be on industry led research and training centres to develop technology and skilled workforce, thereby accelerating the growth of India's Electronics and Information Technology Sector. Sitharaman said that the provision of Rs 1,000 crores has been made towards this programme.

“India's semiconductor mission, 1.0 expanded India's semiconductor sector capabilities. Building on this, we launch ISM 2.0 to produce equipment and materials, develop full-stack Indian IP, and strengthen supply chains. We will also focus on industry-led research and training centers to develop technology and a skilled workforce,” she said in the Parliament.




The budget also has proposals for IT/ITeS with higher threshold and competitive margin as well as to consolidate all IT services, including software development services, IT enabled services, knowledge process outsourcing services and contract R&D services under a single category, “Information Technology Services” with a common safe harbour margin of 15.5% applicable to all.

Notably, the Electronics Components Manufacturing Scheme (ECMS), launched in April 2025 with an outlay of Rs 722,919 crore, already has investment commitments at double the target. It has now been proposed to increase the outlay to Rs 40,000 Crores to capitalise on the momentum.

Key points in India Semiconductor Mission (ISM) 2.0

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.

Safe harbour for IT services will be approved by an automated rule-driven process without any need for a tax officer to examine and accept the application. Moreover, 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.

Finally, 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. It must be noted that the period of 2 years can be extended by a further period of 6 months on taxpayer's request.

‘Tax holiday’ for tech companies

The finance minister also proposed to provide ‘tax holiday’ till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. However, this will be on a condition that these companies must provide services to Indian customers through an Indian reseller entity.

An ‘Education to Employment and Enterprise’ Standing Committee has also been proposed to recommend measures that focus on the Services Sector as a core driver of Viksit Bharat.

What it means for India’s IT industry

The announcements and proposals are aimed at pushing the technology sector for research and training for developing technology and skilled workforce, as well as expedite the growth of India's Electronics and Information Technology Sector.

According to industry leaders, incentives, component localisation and semiconductor-linked supply chains will help help Indian manufacturers climb up the value chain. It also opens the door to large-scale, future-ready employment, especially for young engineers, technicians and skilled workers.

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