Budget 2026 lift IT stocks with tax regime sweeteners for tech and cloud services

Budget 2026 lift IT stocks with tax regime sweeteners for tech and cloud services

• Nifty IT index rose over 1% after Budget 2026 measures boosted sector sentiment
• IT services safe harbour threshold raised to Rs 2,000 crore, easing tax scrutiny
• Tax holiday for foreign cloud firms until 2047 to attract global players to India

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After opening in the red, the Nifty IT index recovered to trade over 1% higher, as investors reassessed Union Budget 2026 measures announcemend on Sunday.

The Budget raised the safe harbour threshold for IT services sharply from Rs 300 crore to Rs 2,000 crore, expanding the number of firms eligible for predictable tax margins. A uniform safe harbour margin of 15 to 15.5% was introduced under a consolidated “Information Technology Services” category, covering software development, IT-enabled services, KPO, and contract R&D.

The approval process was also simplified. Safe harbour clearances will now be automated and rule-based, eliminating discretionary tax scrutiny. Companies can opt for faster Advance Pricing Agreement resolutions within two years, with benefits extending for up to five continuous years.

A key long-term incentive was the tax holiday until 2047 for foreign companies providing cloud services through local data centres, a move expected to encourage global cloud players to deepen their India footprint.

On the Nifty It index, TCS and Wipro were leading the gains by trading 2.5% to 3% higher, followed by Mphasis at over 1%.

Analysts reiterate that this muted reaction in IT stocks had been building up. IT stocks had already turned cautious ahead of the Budget. After a steady January rally, valuations in select large-cap names had begun to look stretched. Profit-booking was visible. Expectations were centred on incremental easing, not a near-term earnings trigger.

Global cues offered little support. US tech earnings have been steady but lacked upside surprises. Rate-cut expectations have moderated. Discretionary tech spending remains selective, keeping deal visibility under scrutiny.

Industry participants welcomed the direction of policy. Nikhil Ambekar, Co-founder of NYAI, said the Budget reinforced a technology-led growth approach, though he flagged the need for stronger support for AI-first startups. Vipul Prakash, Founder and CEO of FireAI, highlighted the focus on intelligence-led innovation and talent readiness. Raja Lahiri, Partner and IT & ITeS Leader at Grant Thornton Bharat, described the measures as supportive of IT services, chip design, and deep-tech ecosystems.

Shiv Kumar Deegwal, Founder of iShivax, said, "With personal income up to Rs 12 lakh now fully exempt under the new regime, boosting disposable income for tech professionals and measures to simplify tax compliance, India’s skilled workforce gains a strong foundation for growth. The Budget also aligns with industry aspirations for deeper AI and digital infrastructure development, as highlighted by expectations around advancing the AI ecosystem, interoperable systems, and robust digital public infrastructure that enable innovation at scale.”

For markets, however, the takeaway was timing. While the policy framework improves visibility and reduces friction, its impact on revenues and margins is likely to play out gradually. In the near term, IT stocks remain tethered to global demand signals, deal conversion, and margin discipline.