Whalesbook
Union Budget 2026 is approaching, sparking high expectations among India's new-age, technology-driven sectors. These burgeoning industries are calling for critical policy shifts, primarily focusing on tax incentives and regulatory simplification, to fuel innovation and job creation.
Building on Budget 2025's allocations for R&D and Global Capability Centres (GCCs), the government announced a ₹1 trillion Research, Development and Innovation (RDI) scheme in November 2025. This initiative aims to chart India's science and technology roadmap towards a developed nation by 2047.
Funding Innovation
The rapid pace of technological advancement in deep tech, AI, and LLMs necessitates continuous, long-term capital investment in R&D. While the RDI scheme offers some support, the sector strongly advocates for a favourable tax regime. This includes deferred taxation for research-intensive projects, allowing them to mature before facing tax penalties.
Additional measures like accelerated depreciation for high-technology machinery and enhanced deductions for hiring new employees are also on the agenda. Relaxing eligibility criteria for these benefits could broaden their application, simultaneously tackling unemployment.
Incentivising Capital and Intellectual Property
Given the capital-intensive nature of these sectors, encouraging lenders to provide funding is paramount. Proposed solutions include concessional tax rates on interest income and enabling easier write-offs for defaults. Large conglomerates are also urged to deploy capital reserves effectively within the innovation ecosystem.
India's current patent box regime, offering a 10% tax rate on royalty income from domestic patents, is considered cumbersome. Simplifying this framework and extending it to other forms of intellectual property would significantly boost its attractiveness and utilisation.
Strengthening the GCC Ecosystem
Several states have introduced GCC policies, but national-level tax holidays are sought for a significant impetus. Current safe harbour provisions for transfer pricing, capped at INR 3 billion in revenue, exclude growing enterprises. Removing this revenue cap and expanding eligible activities would enhance certainty for more companies.
The upcoming Indian Income-tax Act, set to take effect from April 1, 2026, aims for simplification. However, for sectors poised to drive future growth and employment, Budget 2026 must address their specific demands proactively, ensuring India's economic progress unfolds without inhibition.