BUDGET 2026–27 ANNOUNCES LAUNCH OF INDIA SEMICONDUCTOR MISSION (ISM) 2.0
NEW DELHI, FEB 1: Union Finance Minister Nirmala Sitharaman on Saturday presented the Union Budget for the Financial Year 2026–27, announcing a series of major policy initiatives to accelerate the growth of India’s Electronics and Information Technology sector.
Among the key highlights was the launch of India Semiconductor Mission (ISM) 2.0, aimed at producing semiconductor equipment and materials, designing full-stack Indian intellectual property, and strengthening supply chains. The new phase will focus on industry-led research and training centres to develop advanced technology and a skilled workforce. An allocation of Rs. 1,000 crore has been made for ISM 2.0 in FY 2026–27. ISM 1.0 had significantly expanded India’s semiconductor ecosystem, and the new mission will build on that foundation.
The Finance Minister also announced a major enhancement of the Electronics Components Manufacturing Scheme (ECMS). Launched in April 2025, the scheme has already attracted investment commitments at double the target. To capitalise on this momentum, the Budget has proposed to increase the outlay to Rs. 40,000 crore.
To strengthen the IT sector as a key growth engine and provide tax certainty, the Budget proposed new safe harbour provisions for IT and ITeS companies with higher thresholds and competitive margins. Recognising India’s leadership in software development, IT-enabled services, knowledge process outsourcing, and contract R&D services, the Budget has proposed to club all these under a single category, “Information Technology Services,” with a uniform safe harbour margin of 15.5 percent.
The threshold for availing safe harbour for IT services has been proposed to be raised substantially from Rs. 300 crore to Rs. 2,000 crore. Safe harbour approvals will be processed through an automated, rule-driven system without the need for examination by tax officers. Once opted for, companies can continue under the same safe harbour for five consecutive years.
For companies choosing the Advance Pricing Agreement (APA) route, the Budget has proposed to fast-track the unilateral APA process for IT services, with an endeavour to conclude cases within two years, extendable by six months at the taxpayer’s request. The facility of modified returns available to an entity entering an APA will also be extended to its associated entities.
Recognising the importance of critical digital infrastructure, the Budget has proposed a tax holiday till 2047 for foreign companies providing global cloud services using data centres located in India. Such companies will, however, be required to serve Indian customers through an Indian reseller entity. A safe harbour margin of 15 percent on cost has also been proposed where the data centre service provider is a related entity.
The Budget also proposed the formation of a High-Powered ‘Education to Employment and Enterprise’ Standing Committee to recommend measures for strengthening the Services Sector as a key driver of Viksit Bharat. The committee will assess the impact of emerging technologies, including Artificial Intelligence, on jobs and skill requirements and suggest appropriate policy measures.
