India's tax strategy: Attracting capital and tech, building resilience

Budget 2026-27 sharpens India's tax strategy to boost manufacturing, services, GCCs and digital infrastructure, while improving certainty and long-term investor confidence

At a time when global markets remain volatile and businesses are recalibrating supply chains, critical exports and capital allocation, the tax proposals in Budget 2026-27 weave a strategic vision: to position India as a preferred hub for manufacturing and services, high-technology and specialised talent, while strengthening tax certainty. 

India is already the world’s 7th largest services exporter, accounting for 4.3 per cent of global trade and this sector continues to attract the highest foreign investment flows. With a stated goal of lifting the services sector’s global share to 10 per cent by 2047, India’s GCC ecosystem is a major growth engine, but profit-margin determination has resulted in protracted tax litigation and APA negotiations. A single safe harbour margin of 15.5 per cent introduced across all IT and allied services starting 1 April 2026 replaces the erstwhile fragmented 17 per cent-24 per cent range across four categories, with an increased turnover eligibility threshold of ₹2,000 crore (from ₹300 crore). Unilateral APAs for IT service companies will also be fast-tracked, with a target closure timeline of two years, extendable by six months — significant given that 40 per cent of all Unilateral APAs signed in FY 2024–25 were in this sector. Together, these measures materially improve ease of doing business in India for GCCs. 

Another big bet that finds its place in the Budget is the data centre sector. With $70 billion of investment already underway and another $90 billion announced, Budget 2026-27 introduces a 20-year tax holiday for foreign companies delivering cloud services by procuring services from Indian data centres. For multinationals, clarity on permanent-establishment exposure and profit attribution now plays a decisive role in evaluating locations for core infrastructure—an area the Government has sought to address. The safe harbour of cost plus 15 per cent may appeal to certain Indian data centre service providers. Combined with wider policy incentives, these measures position India more credibly as a destination for the next phase of global digital infrastructure build-out. 

Continuing with India’s ambition to position itself as a globally competitive financial hub, the Budget proposes to extend the tax holiday in GIFT IFSC from the current 10 years to 20 years, providing long-term certainty to investors and enhancing the zone’s attractiveness. Importantly, the Budget also provides clarity that income in the non-tax-holiday period will be taxed at a concessional rate of 15 per cent, creating a more predictable life-cycle tax regime. 

The 2026 proposal marks another significant recalibration for buybacks. By restoring capital-gains based taxation for all shareholders while introducing a higher levy for promoters, the Government has sought a nuanced middle ground. Promoters — defined for listed companies under Sebi’s Regulations and, in other cases, aligned to the Companies Act definition (holding 10 per cent or more) — will face 22 per cent tax for promoter companies and 30 per cent for individual promoters. Retail and public shareholders, return to a regime that recognises cost and holding period, with rates of 12.5 per cent (long-term gains) and 20 per cent (short-term gains). While not a full return to the pre-2013 world, it represents a calibrated structure that curbs arbitrage while restoring predictability for the broader shareholder base. Manufacturing too receives support, particularly for toll manufacturing, where the Budget proposes a 5 year tax exemption for foreign companies supplying capital goods or tools to units in customs-bonded areas, subject to conditions. In the energy space, zero basic customs duty on nuclear power project imports is extended until 2035, lowering project costs. Together, these measures aim to strengthen domestic manufacturing and advance long-term energy security and decarbonisation goals. The proposal to develop dedicated rare-earth corridors further points toward the long-term industrial thrust. Supported by customs-duty exemptions on capital goods, the initiative aims to create an integrated mining-to-manufacturing ecosystem and complements existing schemes, enabling an end-to-end domestic value chain in a geopolitically sensitive area. 

When viewed holistically, the proposals outlined in Budget 2026-27 represent a carefully crafted, multi-year strategy designed to strengthen India’s big bets on the path to Viksit Bharat 2047.

The writer is  national tax leader, EY India