Budget 2026–27 positions IT and services as key drivers of India’s economic growth
Safe harbour threshold for IT services raised sharply to ease compliance
Government announces fresh push on AI adoption and semiconductor manufacturing
Tax holiday offered to foreign firms using data centres based in India
The Union Budget 2026-27 has positioned the information technology sector as a core driver of India’s economic growth, announcing a series of measures aimed at easing compliance for IT services firms, expanding the use of artificial intelligence, and attracting global investment in digital infrastructure.
Key proposals include a higher threshold for safe harbour rules covering IT services, the launch of a new phase of the India Semiconductor Mission, and a tax holiday until 2047 for foreign companies that provide global services by procuring data centre capacity in India.
Emphasising the importance of IT in driving economic growth, the Budget proposes to club software development services, IT-enabled services, knowledge process outsourcing and contract research and development related to software development under a single category of Information Technology Services.
These services will now be governed by a common safe harbour margin of 15.5 per cent. The threshold for availing safe harbour benefits has also been raised, from Rs 300 crore to Rs 2,000 crore. Safe harbour rules are intended to lower compliance burdens and litigation risks by offering predefined pricing options for eligible cross-border transactions.
Safe harbour rules apply to certain international transactions, including foreign currency loans and low value-adding intragroup services fees paid by Indian taxpayers to overseas group associated enterprises, as per a 2017 release by industry body NASSCOM. These rules are framed by the Central Board of Direct Taxes.
“The safe harbor ratios were first declared w.e.f AY 2013-14 to AY 2017-18 and the new safe-harbor ratios are effective from AY 2017-18,” the release said.
Finance Minister Nirmala Sitharaman also announced a broader institutional push in her budget speech on February 1, 2026. “I propose to set up a High-Powered ‘Education to Employment and Enterprise’ Standing Committee to recommend measures that focus on the Services Sector as a core driver of Viksit Bharat. This will make us a global leader in services, with a 10 per cent global share by 2047,” she said.
The committee will also assess the impact of emerging technologies, including artificial intelligence, on jobs and skills, and recommend measures accordingly.
The budget’s indicative terms of reference outlined the following focus areas:
Assessing the impact of emerging technologies, including AI, on jobs and skill requirements.
Proposals for specific measures to embed AI in the education curriculum from school level onwards and upgrading State Councils of Educational Research and Training institutes for teacher training).
Proposals for measures for upskilling and re-skilling of technology professionals/engineers in AI and emerging technologies.
The budget underlined the role of “cutting-edge technologies, including AI applications”, as force multipliers for better governance. It identifies sectors such as education, agriculture, customs and employment generation as priority areas for AI deployment.
To improve ease of doing business, the finance minister announced a phased expansion of non-intrusive scanning across all major ports. “Utilisation of non-intrusive scanning with advanced imaging and AI technology for risk assessment will be expanded in a phased manner with the objective to scan every container across all the major ports,” she said.
The budget also announced the launch of a multilingual AI-based tool Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources) to enhance agricultural productivity and to minimise risks by providing tailormade advisories.
The government aims to scale up manufacturing in “7 strategic and frontier sectors”, one of which is semiconductors. Building on India Semiconductor Mission (ISM) 1.0, which sought to expand India’s semiconductor sector capabilities, the latest budget launches ISM 2.0 “to produce equipment and materials, design fullstack Indian IP, and fortify supply chains”.
To draw global investment into India’s digital infrastructure, the finance minister announced a tax holiday until 2047 for foreign companies that provide services by procuring data centre services in India.
“Recognising the need to enable critical infrastructure and boost investment in data centres, it is proposed to provide a tax holiday up to 2047 to any foreign company who provides services to any part of the world outside India by procuring data centre services in India. Sale of such services to Indian users shall be made through an Indian reseller entity and taxed appropriately,” said the finance minister.