Budget 2026-27: What India’s tech sector expects from the govt

As the Union Budget for FY2026–27 approaches, India’s technology, media and telecom (TMT) sectors are preparing for a policy reset shaped by global trade tensions, rapid regulatory change and accelerating adoption of artificial intelligence. The Budget, expected to be presented in February 2026, will be closely watched for signals on trade competitiveness, tax certainty, digital infrastructure and cybersecurity.

With the global trade environment remaining volatile,particularly following renewed tariff actions by the United States, India faces the challenge of balancing domestic manufacturing priorities with the need to remain an open and predictable trading partner. Customs and trade policy decisions in the upcoming Budget are expected to play a critical role in determining cost competitiveness for exporters and import-dependent industries.

Trade and customs: Focus on predictability and compliance

One of the key expectations relates to the operationalisation of voluntary post-clearance revisions under Section 18A of the Customs Act. Introduced in the Finance Act, 2025, the provision allows importers and exporters to voluntarily revise customs declarations after clearance, self-assess duty liabilities and either claim refunds or pay shortfalls.

However, in the absence of a formal notification outlining procedures and conditions, businesses have been unable to use this mechanism. Industry stakeholders are seeking an early notification to make the provision functional, alongside amendments to the Customs Act, 1962 to enable end-to-end digital filing of correspondence, appeals and submissions, similar to processes already available under the GST framework.

GST and direct tax: Addressing structural gaps

Another area of concern is the lack of legislative clarity on the tax treatment of permanent transfers of intellectual property rights (IPR) and other intangibles, particularly in cross-border transactions. While domestic GST law categorises permanent IPR transfers as a supply of goods, the definition of “export of goods” under the IGST Act requires physical movement outside India, an impractical condition for intangible assets. Businesses are seeking a shift towards recognising proof of title transfer through contractual agreements in place of physical movement.

In direct taxation, stakeholders are also calling for an expansion of the scope of Section 72A, which currently allows the carry-forward of losses and unabsorbed depreciation only for amalgamations involving “industrial undertakings” in specified sectors. Extending this benefit to other sectors could encourage consolidation, improve operational efficiency and support employment generation.

Transfer Pricing: Relief amid AI-driven change

The IT and IT-enabled services (ITES) sector is undergoing structural change driven by AI, automation and generative technologies. These shifts have resulted in margin pressure, higher reskilling costs and difficulties in benchmarking traditional service models against AI-driven delivery structures.

In this context, industry bodies are seeking a reduction in Safe Harbour margins under Rule 10TD to better reflect current economic realities, along with the introduction of a separate Safe Harbour category for AI-enabled services. Such measures, they argue, would provide temporary relief and preserve India’s competitiveness as a global services hub during the transition.

There are also calls to streamline Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) processes by expanding administrative capacity, prescribing fixed timelines for common transaction types and standardising documentation requirements. Extending bilateral APA coverage to permanent establishments of Indian companies overseas is another area under consideration to provide greater tax certainty.

Multinational enterprises continue to flag compliance burdens associated with India’s transfer pricing Master File requirements under Rule 10DA. While India adopted the OECD’s BEPS Action Plan 13 framework, additional local data points and the mandatory filing of Form 3CEAA have increased complexity. Aligning India’s requirements more closely with OECD standards and allowing document uploads in standard formats could significantly ease compliance.

Artificial Intelligence: Infrastructure, skills and governance

India’s AI ambitions form a central theme in Budget expectations for 2026–27. Government initiatives such as the India AI Mission and Digital India Bhashini have laid the foundation for expanding access to computing infrastructure, datasets and multilingual AI services. However, the scale of private sector participation remains a key constraint, particularly in meeting rising demand for GPUs and high-performance computing.

One of the principal asks is targeted fiscal support for domestic AI data centre infrastructure. Proposed measures include GST input tax credits on capital assets, conditional tax holidays for qualifying developers, customs duty waivers on critical equipment and compute-credit schemes for start-ups and research institutions. These measures are aimed at reducing dependence on offshore computing and ensuring data sovereignty under India’s data protection framework.

Sustainability is also emerging as a defining concern. Incentives linked to energy efficiency benchmarks, renewable energy procurement and low-water cooling technologies are being proposed to prevent long-term carbon lock-in as data centre capacity expands rapidly.

Building skills and indigenous AI capabilities

Beyond infrastructure, stakeholders are emphasising the need for project-based AI education spanning schools, universities and research institutions. Such an approach could address India’s shortage of experienced AI professionals and support the development of real-world applications.

There are also calls to incentivise domestic companies and start-ups to build India-based large language models using local datasets. Proponents argue that indigenous AI models are better suited to India’s linguistic, cultural and regional diversity, while reducing reliance on foreign technology providers.

The Budget is also expected to signal greater use of AI in tax administration, including automated assessments, faster refund processing and data-driven compliance monitoring. If implemented carefully, these measures could improve efficiency for tax authorities while reducing friction for compliant taxpayers.

Cybersecurity: Towards central coordination

As digital adoption accelerates across government and industry, cybersecurity has emerged as a core policy concern. While multiple regulators and agencies have issued guidelines, the fragmented nature of oversight has led to overlaps and gaps.

One of the key proposals is the creation of a national-level cybersecurity command to provide unified standards, threat coordination and sector-wide response mechanisms. Complementing this, industry-specific CERTs and Security Operations Centres are being proposed to address the distinct risk profiles of sectors such as banking, critical infrastructure and operational technology environments.

Another expectation is the development of a secure, government-owned cloud platform capable of supporting rapid digital rollouts, comparable in agility to global hyperscalers, and extensible to state governments.

Updating policy frameworks

Finally, stakeholders are calling for updates to India’s National Cyber Security Policy (2013) and National Cyber Security Strategy (2020) to reflect the complexity of today’s threat landscape. Proposals also include developing India-specific cybersecurity certification frameworks to address skill shortages and standardise professional competencies.

Taken together, the expectations from Budget 2026–27 point towards a demand for greater policy clarity, administrative efficiency and targeted fiscal support, particularly in areas where technology is reshaping business models and governance. How the government responds will have implications not only for India’s digital economy, but also for its positioning in global trade, AI innovation and cyber resilience.