Union Budget 2026 lays a Strong Foundation for AI Data Centers and Semiconductors

• 02 Feb 2026
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On 1 February 2026, the Union Finance Minister Smt. Nirmala Sitharaman presented the Union Budget 2026-2027. In conversation with the media, Shri. Ashwini Vaishnav, Hon'ble Minister for Railways; Information & Broadcasting; Electronics & Information Technology, Government of India, said that the Union Budget includes several key measures with the aim to boost growth in electronics, information technology and AI ecosystem.

AI Data Centres and Tax Exemptions

According to Mr. Ashwini Vaishnav, data centres, especially AI ones, play a very important role in the infrastructure layer of AI architectures. He highlighted that close to US $ 70 billion in investments are already underway in India. Moreover, approximately US $ 90 billion in investments have been announced.​​​

To promote long term investment, the Budget 2026 proposes a tax holiday until 2047 for foreign companies that offer cloud services using data center facilities based in India. These companies will serve Indian customers via a local reseller entity.

Also, a 15% safe harbor on costs is proposed when the data center service provider is a related entity in India. The Minister stated that this long-term policy framework for data centers aims to create India as one of the leading global destinations for AI and cloud infrastructure.

Electronics Components Manufacturing Scheme

According to the Union Minister, the allocation for Electronics Components Manufacturing Scheme (ECMS) has been raised from approximately Rs. 22,000 crore to Rs. 40,000 crore in Budget. The scheme has received a strong response from industry, he reported.

Over 149 applications have been received under this scheme, significantly exceeding the anticipated 50-55 applications. The raised allocation will help in maintaining the momentum created by the scheme. 

India Semiconductor Mission (ISM) 2.0

As per Mr. Ashwini Vaishnav, the Budget announced India Semiconductor Mission 2.0’s launch. This mission builds on the strong foundation laid under India Semiconductor Mission 1.0, which established a brand new and fundamental semiconductor industry in the nation.

India Semiconductor Mission 2.0 will give priority to designing and manufacturing semiconductor devices in the nation, manufacturing materials required for semiconductor production, creating a large design ecosystem and further boosting the talent development initiates. For FY 2026-27, a provision of Rs. 1,000 crore has been made for this mission.

Simplified IT Services and Safe Harbor Provisions

According to the Minister, IT services remains the largest exported services sector in India, with exports exceeding US $ 220 bn. The Union Budget has proposed new safe harbor provisions for IT and IT enabled services with higher thresholds and competitive margins. 

It has been proposed that all the IT services, including software development services, IT - enabled services, knowledge process outsourcing and contract research and development services shall be grouped under a single category of Information Technology Services with a common safe harbor margin of 15.5 percent. 

For availing the safe harbor, the threshold is proposed to be enhanced from Rs. 300 crore to Rs. 2000 crore, with approval via an automated, rules based procedure. In addition to this, the Budget has also proposed to speed up the unilateral Advance Pricing Agreement (APA) process for IT services and extend the option for revised returns to the concerned entities entering into APAs .

Source: Press Information Bureau (PIB)