Budget 2026: A clearer, friendlier and investment ready income tax regime

The Budget aims to strengthen India’s attractiveness for global investors and high‑value industries. A headline announcement is the tax holiday until 31 March 2047 for foreign companies providing cloud services via Indian data centres. This long‑term certainty is expected to significantly strengthen India’s data‑centre ecosystem.

In addition, toll manufacturing receives a strong push: foreign companies providing capital goods or tooling to toll manufacturers in bonded zones to enjoy a five‑year tax exemption beginning 1 April 2026. This can draw specialised manufacturing into India.

To attract global experts to India’s innovation ecosystem, the Budget exempts non‑Indian sourced global income of foreign experts staying in India for up to five years under notified schemes.

Non‑residents using presumptive taxation to be fully exempt from MAT, aligning their treatment with global norms.

A major enhancement, especially for global financial institutions, is the extension of the tax holiday for units in the International Financial Services Centre (IFSC). Until now, units could claim deduction for 10 out of any 15 years. The Budget proposes a substantial upgrade by allowing the deduction for 20 consecutive years out of a 25‑year window.

This long‑term certainty is likely to accelerate the establishment of global treasury centres, aircraft leasing entities, funds, fintech players, and international banking units in GIFT City. By effectively doubling the incentive duration, India positions its IFSC as a competitive alternative to established global hubs like Singapore, New York and Hong Kong (SAR), China.

The government has revamped tax frameworks that impact businesses, especially knowledge‑driven sectors. IT‑related services, including software development, ITES, KPO and R&D, will be grouped under category of ‘Information Technology Services’, with a uniform safe‑harbour margin of 15.5 per cent.

Further, the eligibility threshold for availing safe harbour has been raised dramatically from INR300 crore to INR2,000 crore, allowing many mid‑sized companies to benefit.

Advance Pricing Agreements (APAs), facing significant systemic delays thus far, to follow a time‑bound disposal period of two years for unilateral APAs. Associated enterprises impacted by an APA to be allowed to file modified returns to align with agreed pricing.

The Budget also proposes a comprehensive review of the Foreign Exchange Management (Non‑Debt Instruments) Rules to create a more contemporary, user‑friendly framework for foreign investments. This modernisation aims to align capital‑flow regulations with India’s evolving economic priorities and provide greater clarity and ease for non‑resident investors.

The FM has emphasised that tax administration must be firm where required, but never intrusive. To that end, the Budget proposes the integration of assessment and penalty proceedings. This means that instead of initiating penalty procedures separately, both outcomes to be issued through a single consolidated order. This is expected to significantly cut the number of parallel proceedings and save taxpayers considerable time and cost.

The Budget also undertakes an important step in decriminalising minor lapses. Technical defaults such as failure to submit audit reports or certain statements, to attract monetary fees instead of criminal penalties. Offences like non‑production of books or non‑payment of TDS where payment was made in kind are being fully decriminalised. These changes remove unnecessary fear for small businesses and individuals and ensure that prosecution is reserved for serious cases alone.

In a progressive move toward voluntary compliance, taxpayers to be able to update their returns even after reassessment has begun, by paying an additional 10 per cent tax. This is expected to reduce both litigation and prolonged disputes. The retrospective amendments to settle often litigated procedural issues of DIN, timeline for assessment and re-assessment jurisdictional matters to provide certainty as the new Income-tax Act, 2026 becomes operational.