Budget 2026 Highlights: Sitharaman Courts Big Tech, Deepens Chip Push
Sitharaman’s ninth Budget backed tech with tax breaks, curbed F&O via higher STT, but disappointed markets and neglected jobs, agriculture.
The Gist
Finance Minister Nirmala Sitharaman presented the Union Budget for 2026-27, focusing on global market integration and tax holidays for specific sectors.
- Cloud service companies in India will receive a tax holiday until 2047, promoting data center growth.
- To reduce reliance on China, rare earth corridors will be established in several states, backed by significant financial support.
- New initiatives in semiconductor manufacturing and biopharma aim to bolster India's position in these critical industries.
Finance Minister Nirmala Sitharaman presented the Union Budget for the financial year 2026–27 in the Lok Sabha on Sunday, the second time it was tabled on a Sunday.
“India must also remain deeply integrated with global markets, exporting more and getting stable long-term investments,” Sitharaman said.
This budget comes at a time when global orders are changing, and India faces a massive 50% tariff burden from its biggest export market, the US.
The budget speech announced tax holidays for certain sectors and finance outlays for others, while it completely skipped sectors like jobs and agriculture.
The stock market plummeted more than 1,000 points during Sitharaman’s speech.
Here are the biggest highlights from her speech:
Wooing Cloud Giants
Sitharaman announced that foreign companies which provide cloud services globally through data centres in India will get a cloud tax holiday till 2047. These companies, however, will have to go through an Indian reseller entity to serve Indian customers.
Himanshu Sinha, Head of Tax Practice at Trilegal, had told The Core earlier last week that a tax holiday for data centres could be on the cards. “Now, the point is, the larger policy question is that this may amount to a reversal of earlier policy pronouncements made by the government that they are largely in favour of not having tax holidays. And on this rationale, the government had brought down the corporate tax rate a few years ago to a very moderate rate of 22%, which is lower than the contemporary OECD rates that you see elsewhere in the world,” Sinha had said.
Breaking China Dependence
Sitharaman announced rare earth corridors in Odisha, Kerala, Andhra Pradesh and poll-bound Tamil Nadu, furthering its bid to reduce dependence on China.
The government had already approved Rs 7,280 crore to manufacture Rare Earth Permanent Magnets (REPM) in India.
Critical minerals and rare earths made headlines throughout the previous year as China imposed export restrictions. India holds the world's third-largest rare earth reserves, which make up for 8% of the global total. The reserves are mostly concentrated in the states where the corridors were announced.
Sitharaman also proposed doing away with duties on capital goods required to manufacture critical minerals.
Semiconductor
The government continued its bid to make India into a semiconductor manufacturing hub, announcing India Semiconductor Mission 2.0. The scheme will have an outlay of Rs 40,000 crore.
“We will launch ISM 2.0 to produce semiconductor equipment and materials, develop full-stack Indian IP, and strengthen supply chains," Sitharaman said.
This scheme, the finance minister said, was to build on India’s first semiconductor mission scheme.
Buyback Tax Reset
Sitharaman also announced changes in the taxation framework governing share buybacks. The reform, she said, aims to shift the burden of taxation to better protect minority shareholders while penalising potential tax arbitrage by company insiders. Under the new guidelines, share buybacks for all categories of shareholders will now be classified and taxed as Capital Gains.
“I propose to tax buyback for all types of shareholders as Capital Gains. However, to disincentivise misuse of tax arbitrage, promoters will pay an additional buyback tax. This will
make the effective tax 22% for corporate promoters. For non-corporate promoters, the effective tax will be 30%,” she said.
Carbon Tech Funding
As had been an expectation for many in the energy sector, carbon capturing found mention in Sitharaman’s budget. She announced an outlay of Rs 20,000 crore over the next five years. “Aligning with the roadmap launched in December 2025, CCUS (Carbon Capture Utilisation and Storage) technologies at scale will achieve higher readiness levels in end-use applications across five industrial sectors, including power, steel, cement, refineries and chemicals,” Sitharaman said.
The government had launched an initiative for research and development into carbon capturing in December 2025.
Carbon capture and storage is essential for India’s road to its Net Zero targets.
Buying Time For IT
Sitharaman announced the easing of safe harbour rules for India’s struggling IT sector. Now, the threshold for availing safe harbour for IT services is Rs 2000 crore, increased from Rs 300 crore.
“Safe harbour for IT services shall be approved by an automated rule-driven process without any need for tax officer to examine and accept the application. Once applied by an IT Services company, the same safe harbour can be continued for a period of five
years at a stretch at its choice,” Sitharaman announced.
She also said that IT-enabled services, knowledge process outsourcing services and contract R&D services relating to software development will now be clubbed under a single category of Information Technology Services with a common safe harbour margin of 15.5% applicable to all.
Lack of global demand and AI have slowed down the IT sector, leading to massive job losses over the past few years. It is still one of the biggest contributors to India’s GDP.
Taxing The F&O Frenzy
Sitharaman announced that the Securities Transaction Tax (STT) on Futures and Options will be increased to 0.05% from the present 0.02%. “STT on options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125% respectively,” Sitharaman announced.
This announcement spooked the markets, with both the BSE Sensex and the NSE Nifty50 tumbling. This tax is applied to market transactions and will lead to higher costs for investors putting money into futures and options.
Freight Corridors Plan
Sitharaman announced that there will be new dedicated freight corridors as part of the efforts to promote environmentally sustainable movement of cargo.
Also part of the announcement was the operationalisation of 20 new national waterways over the next five years. The government will also set up new training institutes as “regional centres of excellence for development” of the required manpower for these waterways.
Sitharaman also announced a ship repair ecosystem catering to inland waterways that will be set up in Varanasi and Patna.
High-Speed Rail Push
Among the key announcements for infrastructure was the high-speed rail corridor. These will be set up between what were termed as “growth connectors”. These will be Mumbai-Pune, Pune-Hyderabad, Hyderabad-Bengaluru, Hyderabad-Chennai, Chennai-Bengaluru,
Delhi-Varanasi and Varanasi-Siliguri.
Sitharaman said that the government had undertaken many projects to improve public infrastructure and now will focus on tier 2 and tier 3 cities. “We shall continue to focus on developing infrastructure in cities with over 5 lakh population (Tier II and Tier III), which have expanded to become growth centres,” Sitharaman said.
Biopharma Bet
Sitharaman proposed the Biopharma SHAKTI, with an outlay of Rs 10,000 crore over the next five years, to build an ecosystem for biologics and biosimilars.
The finance minister said that this was to ensure India became a global manufacturing hub in biopharma.
This push matters as this will as it will enhance India’s capabilities of producing biologics and biosimilars. Sitharaman said that the strategy will include a biopharma-focused network “with three new national institutes of pharmaceutical education and research, popularly known as NIPERS, and upgrading seven existing ones”.
Textile Industry
Sitharaman announced multiple schemes – National Fibre Scheme, Textile Expansion and Employment Scheme, National Handloom and Handicraft Programme, the Text-ECON Initiative and SAMARTH 2.0 — to provide a boost for this sector.
The textile industry is one of the most affected by Trumpian tariffs in 2025. However, the European Union deal and this push could mean better days for the industry.
“Further, I propose to set up Mega Textile Parks in challenge mode. They can also focus on bringing value addition to technical textiles,” Sitharaman said.
