OPINION | Budget 2026 and the expectations of emerging sectors

A favourable tax regime for new ventures is the need of the hour.

With technological advancements reshaping the world, the Union Budget 2025 witnessed enhanced allocations for innovation, research, and development initiatives, recognising them as primary drivers of India’s future economic growth. The Budget also announced the formulation of a national framework for Global Capability Centres (GCCs) to promote their expansion into Tier-2 cities.

Further, the Government announced the Research, Development and Innovation (RDI) scheme of Rs 1 trillion in November 2025. The scheme aims to inspire innovation, promote private sector collaboration, and shape India’s science and technology roadmap towards Viksit Bharat by 2047. As Budget 2026 approaches, the familiar mix of anxiety and anticipation has reached its annual peak. While every sector has its own expectations, this article focuses on the demands of new-age, technology-driven, emerging and sunrise sectors.

Funding Innovation in New-Age Sectors

Technological progress and automation are advancing at a tremendous pace across new-age sectors. Frequent disruptions render technologies obsolete quickly, while rapid developments in deep tech, robotics, artificial intelligence, and large language models (LLMs) necessitate continuous and long-term capital investment in research and development.

Although the RDI scheme seeks to support this ecosystem, a favourable tax regime for such ventures is the need of the hour. Many technology companies would also be willing to fund such ventures, leading to an exponential investment culture. Given the longer gestation period of research-intensive projects, deferred taxation would be advisable to ensure that the proverbial “golden goose” is not penalised prematurely.

Introducing accelerated depreciation for investments in high-technology machinery, along with enhanced additional deductions for hiring new employees, could provide a significant boost to enterprises operating in uncertain and uncharted territories. Relaxation of eligibility criteria would further widen the utilisation of these benefits, incentivising more taxpayers while simultaneously addressing the persistent issue of unemployment.

Incentivising Capital and Intellectual Property

Given the inherently capital-intensive nature of these sectors, lenders should also be incentivised to provide funding. Allowing concessional tax rates on interest income and enabling easier write-offs in cases of default would encourage credit flow. Similar incentives may be extended to large, diversified conglomerates, enabling their substantial capital reserves to be deployed effectively within the innovation ecosystem.

India’s patent box regime currently provides a concessional 10% tax rate on royalty income from patents registered in India, subject to at least 75% of related expenditure being incurred domestically. While this aligns taxation with substantive economic activity, the requirement that patents be initially registered by individuals and subsequently transferred to companies makes the regime cumbersome, risky, and unpopular.

Simplifying the patent box framework and extending it to cover other forms of intellectual property would significantly enhance its attractiveness and utilisation.

Strengthening the GCC Ecosystem

Several states have introduced GCC policies, though these largely focus on non-tax incentives such as access to capital, training, and upskilling programmes. Reintroducing tax holidays for GCCs at the national level would provide a much-needed impetus to the knowledge sector.

GCCs typically provide services to overseas group entities and are therefore subject to Indian transfer pricing regulations. However, safe harbour provisions currently apply only to companies with revenues of up to INR 3 billion. This threshold effectively excludes growing enterprises and penalises successful expansion. Removing the revenue cap altogether would enable more companies to benefit from safe harbour certainty. Additionally, expanding the scope of eligible activities would allow more industries to avail themselves of acceptable safe harbour rates.

Conclusion

The new Indian Income-tax Act, 2025 is expected to come into force from 1 April 2026. The legislation aims to simplify tax laws, enhance certainty, and align India’s tax system with global best practices. While Budget 2026 may not introduce sweeping changes for all taxpayers, the expectations of sectors with the greatest potential to drive growth and employment cannot be overlooked.

The demands of new-age technology companies, GCCs, and other innovation-led enterprises capable of generating large-scale employment should be addressed favourably by Ms Sitharaman. Doing so would ensure that Budget 2026 delivers the long-awaited impetus for economic progress—without inhibitions—despite prevailing global tariff challenges.

(SR Patnaik, Partner (Head-Taxation) and Reema Arya, Consultant-Cyril Amarchand Mangaldas.)

Views are personal, and do not represent the stance of this publication.