**Executive Summary**
The Union Budget for FY 2026-27 includes key measures aimed at accelerating growth in the Electronics, Information Technology, and Artificial Intelligence ecosystem. Notably, it proposes a tax holiday until 2047 for global cloud and AI data center investments, strengthens the India Semiconductor Mission (ISM) 2.0, increases allocation for the Electronics Components Manufacturing Scheme (ECMS), and simplifies safe harbor provisions for IT services. The budget was presented on 01 FEB 2026.
**Key Points / Main Content**
* **AI Data Centres and Tax Incentives:**
* A tax holiday until 2047 is proposed for foreign companies providing cloud services from India, with services to Indian customers delivered through an Indian reseller entity.
* A safe harbor of 15 percent on cost is proposed for data center service providers in India that are related entities.
* Investments of around USD 70 billion are underway in India, with announcements of investments of around USD 90 billion.
* **India Semiconductor Mission (ISM) 2.0:**
* ISM 2.0 focuses on designing and manufacturing semiconductor equipment in India.
* Emphasis is on manufacturing materials for semiconductor production and creating a large design ecosystem.
* Rs. 1,000 crore has been allocated for ISM 2.0 for FY 2026-27.
* **Electronics Components Manufacturing Scheme (ECMS):**
* Allocation increased from Rs. 22,000 crore to Rs. 40,000 crore in Budget 2026-27.
* The scheme has received 149 applications, exceeding expectations.
* **IT Services Simplification and Safe Harbour Provisions:**
* All IT services are proposed to be grouped under a single category of Information Technology Services.
* A common safe harbor margin of 15.5 percent is proposed.
* The threshold for availing safe harbor is proposed to be increased from Rs. 300 crore to Rs. 2,000 crore, with automated approvals.
* The Budget also proposes fast-tracking the Unilateral Advance Pricing Agreement (APA) process for IT services.
**Impact Analysis**
**Foreign Companies Providing Cloud Services**
* **Impact**: Increased investment incentives, reduced tax burden potentially improving profitability.
* **Action Required**: Consider investing in Indian data centers and cloud infrastructure to take advantage of the tax holiday till 2047.
**Indian Data Centre Service Providers**
* **Impact**: Benefit from the safe harbor provisions, reducing tax-related risks.
* **Action Required**: Ensure compliance with the 15% safe harbor on cost for related entities to avail the benefit.
**Semiconductor Industry Stakeholders**
* **Impact**: Funding and focus on domestic manufacturing and design.
* **Action Required**: Engage with the India Semiconductor Mission 2.0 and leverage the allocated funds for designing and manufacturing semiconductor equipment and materials in India.
**IT Service Providers**
* **Impact**: Simplified safe harbor provisions, reduced administrative burden, potential for higher tax certainty.
* **Action Required**: Align with new IT services category and ensure compliance with the 15.5% safe harbor margin.
**Union Finance Ministry**
* **Impact**: Continued responsibility for implementing budget provisions.
* **Action Required**: Monitor progress of key initiatives, specifically growth in the AI ecosystem and semiconductor manufacturing.
Key Entities Referenced
Union Budget 2026-27: The financial plan presented by the Union Finance Minister, outlining key measures for economic growth.
India Semiconductor Mission (ISM) 2.0: A government initiative focused on promoting semiconductor manufacturing, design, and talent development in India.
Electronics Components Manufacturing Scheme (ECMS): A scheme aimed at boosting the manufacturing of electronic components in India.
Unilateral Advance Pricing Agreement (APA): A process for determining transfer pricing for IT services, with the budget proposing to fast-track it.
Ministry of Electronics & IT
Budget 2026-27 lays strong foundation for AI
Data Centres and Semiconductor Ecosystem
Tax Holiday till 2047 to boost Global Cloud and AI Data
Centre Investments in India
Electronics Components Manufacturing Scheme response
exceeded expectations, momentum strengthened in Budget
2026-27: Shri Ashwini Vaishnaw
Semiconductor Mission 2.0 to deepen domestic
manufacturing, design and talent ecosystem
प्रव तथ: 01 FEB 2026 9:06PM by PIB Delhi
Union Finance Minister Smt. Nirmala Sitharaman today presented the Union Budget for the Financial
Year (FY) 2026-27. The Budget includes several key measures aimed at accelerating growth in the
Electronics, Information Technology and Artificial Intelligence ecosystem, the Union Minister for
Electronics and Information Technology, Railways and Information & Broadcasting, Shri Ashwini
Vaishnaw, said while addressing the media.AI Data Centres and Tax Incentives till 2047
Highlighting the focus on digital infrastructure, Shri Ashwini Vaishnaw said that data centres, particularly
AI data centres, play a critical role in the infrastructure layer of the AI architecture. He noted that
investments of around USD 70 billion are already underway in India, with announcements of investments
of around USD 90 billion.
To further encourage long-term investments, Budget 2026-27 has proposed a tax holiday till 2047 for
foreign companies providing cloud services to customers globally using data centre services from India.
Such companies will provide services to Indian customers through an Indian reseller entity. A safe
harbour of 15 percent on cost has also been proposed where the data centre service provider in India is a
related entity.
The long-term policy framework for data centres up to 2047 positions India among the leading global
destinations for AI and cloud infrastructure, the Minister said.India Semiconductor Mission (ISM) 2.0
Shri Ashwini Vaishnaw said that the Budget has announced the launch of India Semiconductor Mission
(ISM) 2.0, building upon the strong foundation created under ISM 1.0, which established a completely
new and foundational semiconductor industry in India.
ISM 2.0 will focus on designing and manufacturing semiconductor equipment in India,
manufacturing of materials used in semiconductor production, creation of a large design ecosystem,
and further strengthening of talent development initiatives. A provision of Rs. 1,000 crore has been made
for ISM 2.0 for FY 2026-27.
Electronics Components Manufacturing Scheme (ECMS)
The Union Minister said that the allocation for the Electronics Components Manufacturing Scheme
(ECMS) has been increased from about Rs. 22,000 crore to Rs. 40,000 crore in the Budget 2026-27. He
highlighted the strong industry response to the scheme, which has received 149 applications, significantly
higher than the expected 50 to 55 applications. The enhanced allocation will help maintain the momentum
generated by the scheme.
IT Services Simplification and Safe Harbour Provisions
Shri Ashwini Vaishnaw said that IT services remain India’s largest exported service sector, with exports
exceeding USD 220 billion. To provide tax certainty and support industry growth, the Budget proposes
new safe harbour provisions for IT and IT-enabled services with higher thresholds and competitive
margins.
All IT services, including software development services, IT-enabled services, knowledge process
outsourcing and contract R&D services, have been proposed to be grouped under a single category of
Information Technology Services, with a common safe harbour margin of 15.5 percent. The threshold for
availing safe harbour has been proposed to be increased substantially from Rs. 300 crore to Rs. 2,000
crore, with approvals through an automated, rule-based process.The Budget also proposes fast-tracking the Unilateral Advance Pricing Agreement (APA) process for IT
services and extending the facility of modified returns to associated entities entering into APA.
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MSZ
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