Union Budget 2026–27: The FM’s Tech Agenda, From Semiconductors To AI And More

Finance Minister Nirmala Sitharaman presented the Union Budget for 2026–27 in Parliament on Saturday. The speech laid out proposals on semiconductors, electronics, AI, data centres, critical minerals, and IT services. This article covers each one, in the order they appeared from the speech.

The technology and semiconductor section this year spanned from mining rare earth minerals, through chip design and electronics assembly, to cloud infrastructure and AI deployment.

Semiconductors: ISM 2.0

The government acknowledged that the first phase of the India Semiconductor Mission (ISM) had already broadened the country's capabilities in the sector. The next phase goes further. Sitharaman told the Parliament

"We will launch ISM 2.0 to produce equipment and materials, design full-stack Indian IP, and fortify supply chains," said Nirmala Sitharaman in her Budget Speech 2026–27

The phrase "full-stack Indian IP" likely means the government is no longer limiting its semiconductor ambition to assembling chips designed elsewhere, it is now targeting the design layer itself. Industry-led research and training centres are planned alongside ISM 2.0 to build the workforce the sector will need. The speech did not state a specific rupee outlay for the mission.

Electronics Components: Outlay Raised to ₹40,000 Crore

The government has proposed to raise the outlay for the Electronics Components Manufacturing Scheme to ₹40,000 crore, after it attracted investment commitments worth twice its original target. Finance Minister Sitharaman said it has “already received investment commitments at double the target,” prompting the higher proposed allocation.

The scheme was launched less than a year ago, in April 2025, with an initial allocation of ₹22,919 crore.

Rare Earths and Critical Minerals

A scheme for Rare Earth Permanent Magnets was launched in November 2025, and this year’s budget expanded it further by focussing on four states.

Finance Minister Nirmala Sitharaman said the Centre will support Odisha, Kerala, Andhra Pradesh and Tamil Nadu to “establish dedicated Rare Earth Corridors to promote mining, processing, research and manufacturing”. The idea is to keep the entire value chain that is from extraction to finished products within India.

The budget also backs this plan with two tax measures. Basic customs duty has been removed on capital goods needed for domestic processing of critical minerals. In addition, some critical minerals have been added to Schedule XII of the Income Tax Act, allowing companies to claim tax deductions on spending for their prospecting and exploration. Together, these steps lower the cost of setting up mineral processing capacity in India and make local production more attractive.

Data Centres and Cloud Infrastructure

The Finance Minister proposed to "provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India." The one condition is that any sales of those services to Indian customers must go through an Indian reseller entity, which will be taxed normally. A 15% safe harbour on cost was also offered for cases where the Indian data centre operator is a related party of the foreign cloud provider.

The choice of year 2047 aligns with the government’s long-term goal of turning India into a developed economy by that year.

IT Services: Consolidated and Streamlined

Sitharaman opened this section by stating that "India is a global leader in software development services, IT enabled services, knowledge process outsourcing services and contract R&D services relating to software development." She then proposed grouping all four under one category for tax purposes.

The new single category is called Information Technology Services. A common safe harbour margin of 15.5% will apply across all four types. A safe harbour, in simple terms, is a pre-set profit margin that tax authorities accept without further questioning. The limit for companies to qualify for this has been raised from ₹300 crore to ₹2,000 crore in annual revenue from these services.

Approval will be done through an automated system. Once a company qualifies, the safe harbour will remain valid for five years without needing to reapply. For companies that want an Advance Pricing Agreement, a formal agreement with tax authorities on how profits will be calculated, the government has proposed to complete the process within two years, with a possible six-month extension.

Artificial Intelligence

The Finance Minister mentioned AI in more than one place in the speech. The most detailed new proposal was Bharat-VISTAAR, which she described as "a multilingual AI tool that shall integrate the AgriStack portals and the ICAR package on agricultural practices with AI systems." AgriStack is the government's digital platform for agriculture data. ICAR is the Indian Council of Agricultural Research. The tool is meant to give farmers advice based on their specific conditions.

A new High-Powered Standing Committee on Education-to-Employment has also been given a mandate to study how AI will change jobs and skills. Its terms of reference, which were published along with the speech, include putting AI into school curricula and proposing ways to retrain technology professionals.

The budget also proposed expanding the use of AI-powered scanning at Indian ports. The stated goal is to "scan every container across all the major ports", to be done in phases. A new Customs Integrated System will be set up within two years as a single platform for all customs processes. A digital window that combines clearance approvals from agencies handling food, drugs, plants and animals is planned to go live by April 2026.

Electronics Manufacturing and Toll Manufacturing

Two government-owned enterprises will set up Hi-Tech Tool Rooms at two locations. These will be digitally enabled facilities for designing, testing and manufacturing high-precision components. Basic customs duty has also been removed on certain parts used in making microwave ovens.

Foreign companies that supply capital goods or tooling to manufacturers operating in bonded zones, which are special areas where goods can be stored and processed without paying import duty until they are sold, will get a five-year income tax exemption.

For storing components in bonded warehouses, non-resident companies are offered a safe harbour at 2% of the invoice value. The Finance Minister noted that "the resultant tax of about 0.75 will be much lower than in competing jurisdictions."

Carbon Capture Technology

As much as ₹20,000 crore has been allocated over five years for Carbon Capture, Utilization and Storage. Sitharaman said that "CCUS technologies at scale will achieve higher readiness levels in end-use applications across five industrial sectors" — power, steel, cement, refineries and chemicals. The allocation follows a roadmap the government released in December 2025.

Creative Technology and AVGC

The Animation, Visual Effects, Gaming and Comics sector is expected to need two million professionals by 2030, according to the Finance Minister. To work towards that number, the Indian Institute of Creative Technologies in Mumbai will set up AVGC Content Creator Labs in 15,000 secondary schools and 500 colleges.