Union Budget 2026 puts the spotlight on IT, data centres, and international expertise

Opportunities for India’s digital economy and global business ambitions took centre stage as Finance Minister Nirmala Sitharaman presented the Union Budget 2026, introducing a host of sweeping changes to the country’s tax structures. The Budget, marked by the unveiling of the new Income Tax Act, 2025, promises to simplify compliance, support innovation, and position India as a more attractive destination for investment and global talent.

India opens its doors to data centres, IT services, and foreign talent

Recognising the growing significance of digital infrastructure, the Budget introduces a tax holiday until 2047 for foreign companies providing global cloud services using Indian data centres. The incentive is designed to position India as a premier global hub for data processing and storage, provided services to Indian customers are routed through a local reseller entity.

The incentives extend beyond infrastructure. Companies providing data centre services from India as related entities can avail a safe harbour profit margin of 15%, while non-residents engaged in component warehousing for electronics manufacturing will be taxed on a profit margin of just 2%. To further encourage global manufacturing, non-residents supplying capital goods to toll manufacturers in bonded zones will be exempt from income tax for five years.

India’s ambition to attract global expertise is also evident. Non-resident professionals relocating under notified schemes will be exempt from tax on non-India-sourced income for up to five years. The Minimum Alternate Tax (MAT) will no longer apply to non-residents taxed on a presumptive basis, lowering barriers for international experts and businesses establishing operations in India.

A boost for India’s IT sector

The Budget brings long-awaited clarity to India’s IT industry. All IT-enabled services—including software development, contract R&D and knowledge process outsourcing—are now clubbed under a single category, ‘Information Technology Services’, with a common safe harbour margin of 15.5%. The eligibility threshold has been raised sharply from ₹300 crore to ₹2,000 crore, expanding coverage to a much larger pool of companies.

Safe harbour approvals will be fully automated, removing subjectivity and delays, and can be continued for five years at a stretch. The Advance Pricing Agreement (APA) process for IT services will be fast-tracked and concluded within two years, extendable by six months at the taxpayer’s request. Importantly, associated entities of APA applicants will also be allowed to file modified returns, further easing compliance.

Simplification for ordinary taxpayers

While business reforms are ambitious, the Budget also targets ease of living for individual taxpayers. The Income Tax Act, 2025, effective 1 April 2026, introduces simplified rules and redesigned forms, with the Finance Minister assuring adequate transition time. The stated intent is that ordinary citizens should be able to comply without professional assistance.

Several measures reduce friction for individuals. Interest awarded by Motor Accident Claims Tribunals will be fully exempt from income tax, with no TDS applicable. The Budget also cuts the TCS rate on overseas tour packages to 2% and reduces TCS under the Liberalised Remittance Scheme for education and medical purposes, easing cash-flow pressures for families.

Depositories will now accept Form 15G/15H directly from investors and share it with companies, reducing paperwork. The deadline for revising returns is extended to 31 March, and filing timelines have been staggered to smoothen compliance.

Easing tax compliance and filing

Small taxpayers will gain access to an automated process for lower or nil TDS certificates, eliminating the need to approach assessing officers. Long-standing ambiguity around TDS on manpower services has been resolved, with such payments explicitly treated as contractor payments at 1% or 2%.

For NRIs selling property in India, TDS will now be handled through the PAN of the resident buyer, removing the need for a separate TAN and simplifying transactions.

The Budget also strengthens the cooperative sector. Primary cooperative societies supplying cattle feed and cottonseed will now qualify for tax deductions, while inter-cooperative dividends will be deductible under the new tax regime. National cooperative federations will receive a three-year dividend tax exemption, provided income is distributed to member cooperatives.

Overall, Union Budget 2026 signals a decisive shift towards a simplified, digital-friendly and globally competitive tax regime. With its emphasis on clarity, reduced litigation and trust-based compliance, the Budget seeks to strengthen India’s appeal as a destination for technology investment, global talent and long-term business expansion.