Budget 2026-27 Lays Groundwork for AI Data Centres, Semiconductor Push; Tax Holiday Till 2047 Announced
The Union Budget 2026-27 has unveiled a series of measures to strengthen India’s electronics, artificial intelligence (AI), and semiconductor ecosystem, including a long-term tax holiday for global cloud and AI data centre operators and the launch of India Semiconductor Mission (ISM) 2.0.
Union Finance Minister Nirmala Sitharaman, while presenting the Budget, outlined steps aimed at accelerating digital infrastructure and manufacturing, a move the government says will position India as a global hub for AI, cloud and chip production.
Briefing the media, Union Minister for Electronics and IT Ashwini Vaishnaw said AI data centres form a critical layer of the country’s digital architecture and are already attracting large investments.
“Investments of around USD 70 billion are underway in India, with announcements of another USD 90 billion. Data centres, especially AI data centres, are becoming foundational to the AI ecosystem,” Vaishnaw said.
To attract long-term global capital, the Budget has proposed a tax holiday till 2047 for foreign companies providing cloud services to global customers using data centre infrastructure located in India. These firms will service Indian customers through domestic reseller entities. A safe harbour of 15 percent on cost has also been proposed where the Indian data centre operator is a related entity.
According to the government, the extended policy horizon aims to provide certainty to investors and establish India among the leading global destinations for AI and cloud infrastructure.
Semiconductor Mission 2.0
The Budget also announced the launch of India Semiconductor Mission (ISM) 2.0, building on the first phase that laid the groundwork for domestic chip manufacturing.
ISM 2.0 will focus on semiconductor equipment manufacturing, production of critical materials, expanding the design ecosystem and strengthening talent development. An allocation of Rs. 1,000 crore has been earmarked for the mission in FY 2026-27.
Vaishnaw said the new phase will deepen domestic capabilities across the semiconductor value chain, reducing import dependence and strengthening strategic resilience.
Electronics Components Scheme Gets Higher Outlay
The allocation for the Electronics Components Manufacturing Scheme (ECMS) has been raised sharply to Rs. 40,000 crore from around Rs. 22,000 crore earlier, reflecting strong industry demand.
The scheme has received 149 applications, significantly higher than the 50–55 applications initially expected, the minister said, adding that the enhanced funding will help sustain manufacturing momentum.
Tax Certainty for IT Services
Recognising IT services as India’s largest services export segment, with shipments exceeding USD 220 billion, the Budget has introduced measures to simplify taxation and provide certainty.
All IT and IT-enabled services — including software development, IT-enabled services (ITeS), knowledge process outsourcing and contract R&D — will now be grouped under a single “Information Technology Services” category with a common safe harbour margin of 15.5 percent.
The eligibility threshold has been increased from Rs. 300 crore to Rs. 2,000 crore, and approvals will move to an automated, rule-based process. The government will also fast-track the Unilateral Advance Pricing Agreement (APA) mechanism and allow modified returns for associated entities entering into APAs.
Officials said the steps are aimed at easing compliance, reducing litigation and improving India’s competitiveness as a global technology services hub.
Taken together, the measures signal a coordinated push to combine infrastructure, manufacturing and policy stability as India seeks to attract large-scale investments in AI, electronics and semiconductors over the long term.
(Source: PIB)
