Byline:
Mr. Hashyadeep Dave
CEO, 3C ITS
Budget 2026 Signals New Growth Momentum for Indian IT Sector
The Union Budget 2026–27, presented by Finance Minister Nirmala Sitharaman on 1 February 2026, has set a forward-looking agenda for India’s technology ecosystem. With a spotlight on digital infrastructure, global investment, and simplified compliance frameworks, this budget offers significant policy clarity for IT companies, data centre operators, cloud service providers, and technology innovators.
The IT industry has broadly welcomed the government’s emphasis on scaling India as a global digital hub and strengthening its competitive edge in data, cloud and AI-enabled services.
Unified IT Services Category and Safe Harbour Expansion
A major reform in Budget 2026 is the government’s decision to consolidate information technology services — software, IT-enabled services, knowledge process outsourcing (KPO) and R&D services — under a single tax category.
- The safe harbour threshold for transfer pricing compliance has been raised dramatically from ₹300 crore to ₹2,000 crore, with a uniform margin of 15.5%. This change is expected to reduce litigation risk and compliance burden for IT firms and global technology service providers operating in India.
This broader classification and higher safe-harbour eligibility will help companies scale with greater certainty and encourage global firms to deepen their India operations.
Incentives for Data Centres and Cloud Infrastructure
One of the standout announcements in Budget 2026 is the long-term tax incentive for data centres and cloud infrastructure as part of a broader effort to position India as a global digital services hub:
- Foreign companies that set up data centres in India and provide cloud services globally can avail tax holiday benefits up to 2047.
- A safe harbour profit margin for related entities offering data centre services has been set (e.g., 15%), providing predictability for pricing and transfer pricing assessments.
These measures signal India’s intent to attract large-scale investment in data infrastructure, support domestic cloud adoption, and make India a competitive alternative to other regional hubs.
“Budget 2026 provides clarity, confidence, and opportunity for the IT ecosystem, enabling technology leaders to scale responsibly while contributing meaningfully to India’s digital future.”
Focus on AI, Digital Transformation and Future Technologies
While the budget did not introduce a standalone flagship for artificial intelligence (AI), it embedded AI and digital technologies across policy initiatives and infrastructure incentives. Budget 2026 affirmed that compute infrastructure, cloud services, and secure digital growth will be central drivers of India’s economic strategy.
This strategic approach lays the groundwork for future innovation investments in AI, analytics, cybersecurity, and digital platforms — all core growth areas for the IT industry.
Encouraging Global Expertise and Investment
By expanding safe harbour thresholds, providing tax clarity, and reducing compliance friction, the budget creates a conducive environment for Global Capability Centres (GCCs), software product firms, and international service centres to invest in India.
Domestic and multinational technology companies are expected to view India as a more attractive destination for talent, R&D, and technology delivery. Early reactions from industry associations like NASSCOM have been positive, noting that the measures support long-term competitiveness.
A Budget That Balances Stability with Digital Opportunity
Beyond targeted tech measures, Budget 2026 reinforced macroeconomic fundamentals, infrastructure investment and long-term growth metrics, with capital expenditure increases and deficit targets designed to sustain confidence and investment.
For the Indian IT industry, this budget is not only about short-term incentives but also about long-lasting structural support — from technology adoption and service exports to global partnerships and a stronger digital ecosystem.
Conclusion and Industry Outlook
Budget 2026 has positioned the IT and technology sector as a strategic pillar of national growth. With expanded safe harbour norms, unmatched incentives for cloud and data centre investment, and an integrated tax framework for technology services, the policy outlook is positive for domestic firms and global investors alike.
These reforms are expected to spur innovation, provide predictable regulatory outcomes, attract multinational technology players, and accelerate India’s journey toward a digital economy that competes at the global level.
As digital transformation continues across sectors, the IT industry stands ready to contribute toward economic value creation, export growth, and inclusive technology adoption in the years ahead.
