Union Budget 2026 outlines the government’s intent to accelerate digital transformation by prioritizing cloud infrastructure as well as artificial intelligence (AI) across enterprises, public services, and innovation ecosystems. In order to achieve the vision of emerging as a key digital leader, the provisions indicate a shift towards building secure, resilient, and future-ready technology infrastructure and foundation.
Cloud adoption across government and industry is critical for a digital vision
The Budget outlines emphasis on cloud infrastructure to support scalability, interoperability, as well as secure data exchange. The initiative aims for migration of legacy systems while ensuring data sovereignty and compliance. The Budget also proposes incentives for SMEs and startups for adoption of cloud platforms; this includes tax incentives for spends linked to AI workloads. This is expected to lower barriers for small enterprises which struggle with infrastructure costs.
“The Union Budget 2026–27 provides much-needed structural clarity for India’s AI and cloud infrastructure ecosystem. The government’s proposal to club software development, IT-enabled services, knowledge process outsourcing, and contract R&D services relating to software development under a single category of information technology services, with a uniform safe harbour margin of 15.5% and an expanded eligibility threshold from ₹300 crore to ₹2,000 crore, significantly improves tax certainty for larger technology and services companies operating at scale. By moving to automated, rule-driven safe harbour approvals and enabling five-year continuity, the regime meaningfully reduces friction and compliance overheads,” says Sharad Sanghi, Co-founder & CEO of Neysa – on the government’s announcements around AI and cloud infrastructure.
Experts say that equally consequential is the proposal to offer a tax holiday until 2047 for foreign companies providing cloud services to customers outside India using data centre services based in India, along with a 15% safe harbour on cost for related Indian entities delivering those services. These measures directly strengthen India’s attractiveness as a hub for cloud and AI infrastructure and support the shift towards domestically hosted compute.
“By addressing tax certainty for IT services, incentivising global cloud services anchored on Indian data centres, and encouraging fresh data centre investment together, the Budget lays a strong foundation for India’s next phase of enterprise AI adoption,” adds Sanghi.
According to a Nasscom statement: The Budget makes an important intervention to strengthen India’s cloud and digital infrastructure ecosystem. The proposal for a tax holiday till 2047 for foreign companies providing cloud services to customers globally using data centre services from India, with services to Indian customers routed through an Indian reseller entity, sends a clear signal to attract long-term global investment and support the expansion of India’s compute capacity. The introduction of a 15 percent on-cost safe harbour for related-party data centre service providers provides pricing certainty for routine infrastructure services. On a broad reading, the combined design of these measures helps address long-standing interpretational challenges by clearly separating cloud service activity from data centre operations and aligning India’s taxing rights with arm’s length remuneration, thereby improving ease of doing business and investment confidence.
Push for AI needs allied research, innovation, and deployment support
Budget 2026 places priority on AI innovation, with increased funding for national research institutions, public-private partnerships, and collaborative labs focused on AI, machine learning, and data analytics. The government proposes enhanced support for centers of excellence in AI and emerging technologies as well as integrated hubs where academia, industry, and startups can co-develop use cases in healthcare, agriculture, financial inclusion, and smart cities. AI-powered public services would be crucial for a digital society. Investments in AI for citizen services such as natural language interfaces as well as predictive analytics augur well for public health and disaster response. However, there will be a need for talent development in these areas. Upskilling programmes together with industry-academia collaboration will be required in order to build a larger pool of AI specialists, data scientists, and cloud engineers.
“Equally important is the Budget’s emphasis on cloud and data centre infrastructure from the long‑duration tax holiday until 2047 for foreign companies providing global cloud services from India‑based data centres to the 15% safe harbour on cost for related data centre entities. Together, these measures will catalyse fresh investment into high‑performance, secure, and scalable infrastructure, the foundation for cloud‑first, AI‑ready, and automation‑driven environments that modern enterprises now depend on,” says Sumed Marwaha, Managing Director – AHEAD India.
“For AHEAD, which helps organisations modernise core infrastructure, build custom AI‑ready platforms across cloud, core, and edge, and simplify operations through automation and observability, this Budget materially strengthens the surrounding ecosystem. It aligns policy, infrastructure, and talent towards a common objective, enabling enterprises to execute digital transformation with greater speed, reliability, and impact, while reinforcing India’s position as a strategic, long‑term delivery base for global digital initiatives,” he adds.
Strengthening digital infrastructure
Recognizing that digital transformation is only as strong as its infrastructure base, the Budget also allocates funding for broadband expansion, 5G adoption, and edge computing frameworks, all of which are complementary to cloud and AI initiatives. These investments aim to expand access in rural and underserved regions, ensuring that technological benefits are widely distributed.
“Generative AI is emerging as a key productivity layer across software development, operations, and customer engagement. Agent-based AI systems mark a shift from task automation to intelligent systems that can reason and optimize processes with minimal human intervention,” says Narinder Kumar, Co-Founder & CEO, TO THE NEW.
“The government’s move to form a high-powered committee to assess the effect of Artificial Intelligence on the services sector is a sign of a well-thought-out, reform-oriented strategy that gives equal importance to innovation, employment, and skill development. The Budget’s recognition of AI as an economic enabler and not a prestige-building exercise again underlines the significance of open and sector-driven innovation frameworks. Additional support in terms of the IndiaAI Mission, National Quantum Mission, and research and innovation funds will further enhance the foundation for inclusive growth through technology,” says Tarun Wig, Co- Founder & CEO, Innefu Labs.
