Introduction: A Digital Leap Forward

The Union Budget for the Financial Year 2026-27, presented by Finance Minister Smt. Nirmala Sitharaman, has placed a massive emphasis on cementing India's position as a global technology hub. The announcements focus heavily on the next phase of semiconductor growth, scaling up electronics manufacturing, and providing much-needed tax certainty to the IT services sector.

Key Budget Figures (FY 2026-27)
ECMS Outlay

₹40,000 Crores

ISM 2.0 Fund

₹1,000 Crores

Safe Harbour Rate

15.5% Margin

Tax Holiday Till

Year 2047

India Semiconductor Mission (ISM) 2.0

Moving Beyond Assembly

Building on the success of the first phase, the government has officially launched ISM 2.0. While ISM 1.0 focused on establishing capabilities, the second phase targets:

  • Production of semiconductor equipment and materials.
  • Design of full-stack Indian Intellectual Property (IP).
  • Fortification of global supply chains.

A specific provision of ₹1,000 crores has been set aside for FY 2026-27 to support industry-led research and the development of a skilled workforce.

Electronics Components Manufacturing Scheme (ECMS)

Massive Capital Injection

The ECMS, originally launched in April 2025, has seen overwhelming interest, with investment commitments already doubling the initial targets. To sustain this momentum, the Finance Minister proposed increasing the scheme's outlay to ₹40,000 Crores. This move aims to localize the supply chain for electronics, reducing import dependency.

IT & ITeS Sector: Tax Certainty

New Safe Harbour Provisions

Acknowledging the IT sector as India's growth engine, the budget introduces major tax reforms to reduce litigation and improve ease of doing business:

  • Unified Category: Software development, KPO, and R&D services will now be clubbed under "Information Technology Services."
  • Competitive Margin: A common safe harbour margin of 15.5% will apply to all these services.
  • Higher Threshold: The limit for availing safe harbour is raised substantially from ₹300 crore to ₹2,000 crore.

Approvals will be processed via an automated rule-driven system, eliminating the need for tax officer examination. Once approved, companies can retain this status for 5 years.

Data Centers & Cloud Services

Global Hub Ambitions

To attract foreign investment into critical digital infrastructure, the budget proposes a Tax Holiday until 2047. This applies to foreign companies providing cloud services globally using data centers located in India.

Note: These services must be routed to Indian customers through a local reseller entity.

Source Information

Official Press Release: Ministry of Electronics & IT - PIB

Budget 2026-27: India Launches Semiconductor Mission 2.0 & Hikes Component Manufacturing Outlay to ₹40,000 Cr - Image 1

Frequently Asked Questions

Q. What is the main goal of ISM 2.0?
ISM 2.0 focuses on developing the upstream ecosystem, including manufacturing equipment, materials, and creating indigenous semiconductor Intellectual Property (IP).
Q. How has the budget for ECMS changed?
Due to high investment interest, the outlay for the Electronics Components Manufacturing Scheme has been increased to ₹40,000 Crores.
Q. What is the new Safe Harbour margin for IT companies?
The budget proposes a unified safe harbour margin of 15.5% for all IT and ITeS services.
Q. Who is eligible for the Data Center tax holiday?
Foreign companies using Indian data centers to provide cloud services globally are eligible for a tax holiday until 2047.