**Executive Summary**
The Union Budget for FY 2026-27, presented by the Finance Minister, includes measures to accelerate growth in India's Electronics and Information Technology sector. Key announcements include the launch of India Semiconductor Mission (ISM) 2.0, an increased outlay for the Electronics Components Manufacturing Scheme (ECMS), and new safe harbour provisions for IT/ITeS. The budget also proposes tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India.
**Key Points / Main Content**
* **India Semiconductor Mission (ISM) 2.0:**
* Launched to produce equipment and materials, design full stack Indian IP, and fortify supply chains.
* Focus on industry-led research and training centres to develop technology and skilled workforce.
* Rs. 1,000 crore allocated for FY 2026-27.
* **Electronics Components Manufacturing Scheme (ECMS):**
* Outlay increased to Rs. 40,000 Crores from the initial outlay of Rs. 722,919 crore.
* **IT/ITeS Safe Harbour Provisions:**
* New safe harbour provisions with higher threshold and competitive margin proposed.
* All IT services to be clubbed under a single category Information Technology Services with a common safe harbour margin of 15.5 percent.
* Threshold for availing safe harbour enhanced from Rs. 300 crore to Rs. 2,000 crore.
* Safe harbour approval process to be automated.
* Safe harbour can be continued for a period of 5 years at a stretch at the IT company's choice.
* **Advance Pricing Agreement (APA):**
* Unilateral APA process for IT services to be fast-tracked and concluded within 2 years (extendable by 6 months on request).
* Facility of modified returns extended to associated entities entering APA.
* **Data Centres:**
* Tax holiday till 2047 proposed for foreign companies providing cloud services globally using data centre services from India.
* Services must be provided to Indian customers through an Indian reseller entity.
* Safe harbour of 15 percent on cost proposed for companies providing data centre services from India as a related entity.
* **High-Powered Committee:**
* 'Education to Employment and Enterprise' Standing Committee proposed.
* Will focus on the Services Sector as a core driver of Viksit Bharat.
* Will assess the impact of emerging technologies, including AI, on jobs and skill requirements.
**Impact Analysis**
**IT/ITeS Companies:**
* **Impact:** Benefit from enhanced safe harbour provisions, reduced tax uncertainty, and streamlined APA processes.
* **Action Required:** Evaluate eligibility for new safe harbour provisions, prepare for automated approval processes, and consider the impact of proposed changes on tax planning.
**Foreign Companies Providing Cloud Services:**
* **Impact:** Potential tax holiday and increased investment attractiveness for setting up data centres in India.
* **Action Required:** Evaluate the potential benefits of the tax holiday and plan for establishing data centre services in India, ensuring compliance with the requirement to provide services to Indian customers through an Indian reseller entity.
**Electronics Components Manufacturers:**
* **Impact:** Increased investment in ECMS scheme.
* **Action Required:** Evaluate the increased investment and implement growth strategies to capitalize on the momentum.
**General Public/ Workforce:**
* **Impact:** Develop technology and skilled workforce with industry-led research and training centres
* **Action Required:** Upskilling for a career in the semiconductor industry.
Key Entities Referenced
India Semiconductor Mission (ISM) 2.0: A mission to produce equipment and materials, design full stack Indian IP, and fortify supply chains in the semiconductor sector.
Electronics Components Manufacturing Scheme (ECMS): A scheme to incentivize the manufacturing of electronics components.
Ministry of Electronics & IT: Government ministry overseeing electronics and information technology policies and initiatives.
High-Powered 'Education to Employment and Enterprise' Standing Committee: A standing committee proposed to focus on the Services Sector as a core driver of Viksit Bharat, assessing the impact of emerging technologies.
Ministry of Electronics & IT
Budget 2026-27 announces the launch of India
Semiconductor Mission (ISM) 2.0
Budget outlay towards Electronics Components
Manufacturing Scheme
(ECMS) to be increased to Rs. 40,000 Crores
New safe harbour provisions for IT/ITeS with higher threshold
and competitive margin
प्रव तथ: 01 FEB 2026 2:27PM by PIB Delhi
Union Finance Minister Smt. Nirmala Sitharaman today presented the Union Budget for the Financial
Year (FY) 2026-27. The announcements also included significant measures for accelerating the growth of
India's Electronics and Information Technology Sector.
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.
The Electronics Components Manufacturing Scheme (ECMS), launched in April 2025 with an outlay
of 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 capitalize on the momentum.
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 with higher threshold and competitive margin. India is a
global leader in software development services, IT enabled services, knowledge process outsourcing
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 Information Technology Services with a common safe harbour margin of 15.5 percent
applicable to all.
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 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.
Recognising the need to enable critical infrastructure and boost investment in data centres, Budget 2026-
27 has 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. It 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.
A High-Powered '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. The committee
will also assess the impact of emerging technologies, including Al, on jobs and skill requirements and
propose measures thereof.
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MSZ
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