Union Budget 2026–27: Building India as a Global Manufacturing and Services Hub

India’s Union Budget 2026-27 clearly tries to make India a long?term base for global manufacturing and services, while keeping tax and customs rules simpler and more predictable for both Indian and foreign businesses.

The Budget is built around three main ideas:

• keep the economy growing with more investment and jobs,
• help people build skills and incomes, and
• ensure growth is inclusive across regions and sectors.

For businesses, it opens clear opportunities in cloud and IT, contract manufacturing, global capacity centres, seafood, textiles, aerospace, defence, and MSME driven supply chains.

Tax holiday and foreigner-friendly measures

This Budget is very friendly to foreign companies that want to base real business in India:

• Foreign companies providing cloud services to global customers using data centre infrastructure in India get a tax holiday up to 2047, which in practice is a very long-term tax break for global capacity centres and cloud platforms.
• Any non-resident that provides capital goods, equipment or tooling to a toll manufacturer in a bonded zone will get a five year income tax exemption on that income, which suits contract manufacturing models where equipment is owned offshore and used in India.
• Non-resident experts get exemption on their global (non-India sourced) income for a stay of up to five years under notified schemes, making it easier to post foreign managers and technical specialists into India.
• Non-residents who are taxed on a presumptive basis will not be subject to Minimum Alternate Tax (MAT), which simplifies tax for many foreign structures.

In simple terms, if a foreign group wants to move part of its China-based work to India—cloud, design, back office or manufacturing—this Budget reduces tax friction both for the foreign entity and for its key people.

MSMEs, contract manufacturing and “China plus one”

The Budget strengthens the MSME ecosystem so that it can support large global supply chains:

• A Rs.10,000 crore SME Growth Fund will invest in promising MSMEs so that some of them can grow into mid and large-sized “champion” suppliers.
• The Self Reliant India Fund gets an extra Rs.2,000 crore, keeping risk capital flowing to small businesses, including those working as contract manufacturers.
• TReDS is being pushed as the main payment and discounting platform for MSME invoices to CPSEs, backed by credit guarantees and even securitisation of receivables, which improves cash flow for vendors.
• Professional bodies like ICAI, ICSI and ICMAI will create “Corporate Mitras” to help MSMEs handle compliance at lower cost, which is important when they supply to foreign clients with strict governance standards.

For foreign clients shifting sourcing from China, this means Indian MSMEs will be better capitalised, more compliant, and easier to work with on long-term contract manufacturing and component supply arrangements.

Sector focus: seafood, textiles, aerospace and defence

Seafood and agri-exports

• The limit for duty free imports of specified inputs for seafood processing has been raised from 1% to 3% of the previous year’s FOB export value, directly improving margins for export oriented seafood units.
• Fish caught by Indian vessels in the EEZ or on the high seas will be free of duty, and landing such fish at a foreign port will be treated as an export of goods, giving more flexibility in structuring international seafood routes and joint ventures.

This creates a strong base for foreign seafood brands and trading houses to use India as a processing and export hub.

Textiles, leather and other labour intensive exports

• An Integrated Programme for the Textile Sector includes a National Fibre Scheme, a Textile Expansion and Employment Scheme for cluster modernisation, and Mega Textile Parks focused on technical textiles.
• Duty free import benefits for inputs are extended to shoe uppers, and the export period for leather and textile garments and footwear is extended from six months to one year, which helps exporters manage production and logistics cycles better.

These steps make India more attractive for global buyers in apparel, leather and technical textiles who want to reduce over-dependence on China and Southeast Asia.

Aerospace and defence manufacturing

• Basic customs duty is exempt on components and parts used in aircraft manufacturing, and on raw materials imported for manufacturing aircraft parts used in MRO activities for defence units.
• A special one-time measure allows eligible SEZ manufacturers to sell into the Domestic Tariff Area at concessional duty up to a prescribed limit, which is important for aerospace and defence units set up in SEZs.

Foreign OEMs in civil aviation and defence can now look at India not only as a market, but also as a production and MRO base with lower input costs.

Global capacity centres (GCCs), IT and data-led businesses

The Budget tries to lock in India’s advantage as a service and technology hub:

• Software development, ITES, KPO and contract R&D related to software are all clubbed into a single “Information Technology Services” category, with a common safe-harbour margin of 15.5% and a higher turnover threshold of Rs.2,000 crore, which brings more certainty in transfer pricing for large GCCs.
• Safe-harbour approvals will be automated and can continue for five years at a time, and unilateral APAs for IT services are to be fast-tracked with a normal target of two years, extendable by six months at the taxpayer’s request.
• The tax holiday for foreign cloud service providers using Indian data centres, plus a 15% safe-harbour margin for related Indian data-centre entities, makes India a very attractive place to house global workloads and data-heavy operations.

For companies currently running critical IT and back office work from China or other jurisdictions, this combination of tax certainty, safe-harbour margins and cloud tax holidays makes India a natural “plus-one” location.

Ease of doing business and tax compliance

Apart from sector-specific incentives, the Budget also makes day-to-day tax and compliance easier:

• Individuals resident outside India (PROIs) will be allowed to invest in listed Indian shares through the Portfolio Investment Scheme, giving them a simpler route into Indian equity markets.
• TCS on overseas tour packages is being reduced to 2%, and TCS on LRS remittances for education and medical purposes is also being cut to 2%, which lowers upfront cash outflow for families and small businesses.
• TDS on supply of manpower services will be at only 1% or 2%, and small taxpayers can obtain lower or nil TDS deduction certificates through a rule based automated process.
• Depositories will be able to accept Forms 15G/15H even where taxpayers hold securities in multiple companies, and the time for revising returns is extended from 31 December to 31 March, subject to a nominal fee.
• Taxpayers can update their returns even after reassessment proceedings have begun, by paying an additional 10% over the normal tax rate, which helps in closing disputes with less litigation.
• A one-time six month foreign asset disclosure scheme is proposed for smaller cases, and immunity from prosecution is given for past non-disclosure of certain foreign assets up to Rs.20 lakh (excluding immovable property), with effect from 1 October 2024.
• Non-residents who pay tax on a presumptive basis are exempt from MAT, MAT credit set-off in the new regime is capped at one-fourth of the tax liability, and MAT is proposed to become a final tax going forward.

These changes support cross-border investors, NRIs and small businesses by reducing cash flow strain, simplifying procedures and offering cleaner ways to settle old issues.

Customs, ease of trade and “trusted trader” approach

• Customs duty is removed on several key inputs: aircraft components and raw materials for defence MRO parts, capital goods for processing critical minerals, parts for microwave ovens, capital goods for lithium-ion cell manufacture, and certain inputs for solar glass.
• Duty free sales from SEZs into the domestic market at concessional duty for a one-time window will help units balance exports and domestic demand.
• Tier 2 and Tier 3 Authorised Economic Operators get a longer duty deferral period (from 15 to 30 days), advance rulings will be valid for five years instead of three, and trusted importers with strong track records will face less frequent verification and more warehouse operator centric rules.
• Cargo clearance approvals from different agencies are to be processed through a single interconnected digital window, and a new Customs Integrated System is planned to be rolled out in two years.

This “trust based” framework suits large global businesses that value predictable and quick customs handling for high-value, just-in-time supply chains.

How India Law Offices (ILO) can assist

India Law Offices can help foreign investors, NRIs, global companies and Indian promoters turn these Budget changes into practical business structures that actually work on the ground.

• Business and tax setup: We help you choose the right form of presence in India (subsidiary, LLP, branch or liaison office). We can also design cloud, data centre and contract manufacturing models so that you can use the new tax holidays and safe-harbour rules and keep them aligned with the upcoming Income tax Act, 2025.

• MSME and vendor ecosystem: Drafting and vetting contract-manufacturing, supply and quality control agreements with Indian MSMEs, including risk allocation, IP protection and export control compliance.

• Customs and indirect tax support: We can plan your seafood, textile, aerospace and defence supply chains so that you make full use of duty free imports, SEZ to DTA concessions and bonded warehouses or EEZ based models, while staying fully compliant with Indian law.

• Regulatory and FEMA compliance: We advise on foreign investment rules, bonded zone and SEZ operations, movement of money in and out of India, and technology or know-how sharing. This is especially useful for companies shifting part of their production or services from China to India and wanting a clean, compliant structure from day one.