Budget 2026-27 Launches Semiconductor Mission 2.0, Boosts Electronics Manufacturing Outlay; Eases Tax Norms for IT/ITeS

he Union Budget 2026-27 has unveiled a fresh push to strengthen India’s electronics, semiconductor and IT services ecosystem, announcing the launch of India Semiconductor Mission (ISM) 2.0, a higher outlay for electronics component manufacturing, and simplified tax provisions for IT and IT-enabled services.

Presenting the Budget, Finance Minister Nirmala Sitharaman outlined measures aimed at deepening domestic manufacturing, improving supply chain resilience and providing tax certainty to India’s technology services industry.

Semiconductor Mission 2.0

A key announcement is the launch of ISM 2.0, the next phase of the government’s semiconductor strategy, focused on building capabilities across equipment and materials manufacturing, chip design and intellectual property creation.

The mission will promote industry-led research and training centres to strengthen technology development and create a skilled workforce. An allocation of Rs. 1,000 crore has been provided for FY 2026-27.

The new phase builds on ISM 1.0, which laid the foundation for India’s semiconductor manufacturing ecosystem, with the government aiming to deepen domestic value chains and reduce import dependence.

Higher Outlay for Electronics Components

The Budget has also proposed increasing the outlay for the Electronics Components Manufacturing Scheme (ECMS) to Rs. 40,000 crore to accelerate local production.

Launched in April 2025, the scheme has already attracted investment commitments at nearly double the initial targets, prompting the government to expand support to sustain industry momentum.

Officials said the enhanced allocation is expected to boost domestic manufacturing of critical components and strengthen India’s position in global electronics supply chains.

Tax Certainty for IT, ITeS

Recognising IT services as a key growth engine and export contributor, the government has introduced new safe harbour provisions to simplify taxation and reduce compliance burden.

All software development, IT-enabled services, knowledge process outsourcing and contract R&D activities 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 raised sharply from Rs. 300 crore to Rs. 2,000 crore. Approvals will be processed through an automated, rule-based system without manual scrutiny.

Companies opting for the safe harbour regime will be able to continue it for five years at a stretch. The government will also fast-track the Unilateral Advance Pricing Agreement (APA) process, targeting closure within two years, with a possible six-month extension. Associated entities will be allowed to file modified returns under the APA framework.

Push for Data Centres, Skills

To encourage investments in digital infrastructure, the Budget has proposed a tax holiday till 2047 for foreign companies providing global cloud services using data centre infrastructure located in India, subject to servicing domestic customers through Indian resellers. A safe harbour of 15 percent on cost has also been proposed for related entities.

Additionally, a high-powered ‘Education to Employment and Enterprise’ Standing Committee will be set up to recommend measures for strengthening the services sector and assess the impact of emerging technologies, including AI, on jobs and skill requirements.

Together, the measures signal a coordinated effort to position India as a manufacturing and services hub across semiconductors, electronics and digital technologies.