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The Biggest Takeaways From Union Budget 2026 For Indian Tech & Startups

36 0
01.02.2026

The Union Budget 2026 introduces a series of transformative measures aimed at positioning India as a global hub for manufacturing, services, and deeptech innovation.

Finance Minister Nirmala Sitharaman’s 90-minute long address did not specifically call out Indian startups as a key focus area (mentioned just twice), but there was a clear emphasis on AI, data centre economy and manufacturing, which will undoubtedly have a ripple effect on the Indian startup ecosystem.

From massive tax holidays for cloud infrastructure to strategic pushes in semiconductor and AI domains, here is the complete list of key takeaways for the Indian tech and startup ecosystem from the Union Budget 2026.

India Semiconductor Mission (ISM) 2.0 Takes Flight

The Union Budget 2026-27 has proposed expanding the India Semiconductor Mission, with a bigger focus on the hardware manufacturing ecosystem and a transition to the next phase with bigger allocation.

The FM proposed to increase the outlay of the existing Electronics Component Manufacturing Scheme (ECMS) to INR 40,000 Cr.

What This Means: Accelerated funding and infrastructure support for domestic fabless startups and outsourced semiconductor assembly and test (OSAT) units. Encourages domestic design and manufacturing, reducing reliance on global supply chain fluctuations. The proposed ISM 2.0 plans delve deeper into the push towards an IP-centric ecosystem and shift from semiconductor assembly and production-led incentives to IP ownership, thanks to the push for fabless and OSAT setups

Tax Holidays For Cloud, Data Centre Giants

To bolster India’s digital infrastructure, foreign companies providing cloud services through India-based data centres will receive unprecedented tax benefits.

When it comes to AI-native startups, unit economics are skewed towards compute costs and this proposed tax holiday can change who captures margin, but will it be startups?

Provision of tax holidays until 2047 for global cloud providers operating via Indian data centres.

What This Means: A 15% safe harbour provision on costs for related entities providing data centre services, likely lowering the cost of cloud credits for local startups. The proposed changes will pull global cloud workloads into India, but the benefits may accrue to hyperscalers and resellers before startups see any boost in their compute needs. Drastically reduces the long-term tax litigation uncertainty that many cross-border SaaS and IT startups face. Increased speed in tax settlements makes India a more attractive destination for global tech giants to set up Global Capability Centres (GCCs).

AI Governance Push & Clarity For IT Services

The budget proposes a significant hike in the safe harbour threshold for IT Services, moving from INR 300 Cr to INR 2,000 Cr.

Sitharaman’s budget address framed AI as a force multiplier for governance, and pushed for strong platforms and rails within the various government units including in customs duty, agritech and other key areas.

However, the budget speech was relatively quiet on........

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