Budget 2026 expected to strengthen India’s AI mission via dedicated funding, policy support, say experts

With tax revenue growth showing signs of stagnation and the fiscal deficit already charting a credible consolidation path—falling below 4.8% in FY25 and targeting 4.4% in FY26—the upcoming budget is widely expected to be evolutionary rather than reform-heavy. Within these constraints, policymakers are likely to focus on targeted interventions, particularly for sunrise sectors such as AI, rather than broad-based fiscal giveaways, Taxmann noted.

Against the backdrop of an intensifying global race in the field of artificial intelligence, Budget 2026 is expected to strengthen India’s AI Mission through dedicated funding and policy support. The Budget will focus on developing India-specific AI models and use cases, aligned with local languages, governance needs and industry requirements.

This approach would not only reduce reliance on foreign technology but also help Indian companies remain competitive in an increasingly protectionist global environment, Taxmann said.

Industry participants expect the government to expand the scope of Production-Linked Incentive (PLI) schemes to cover emerging areas such as AI, robotics, space technology and green energy. Extending fiscal incentives to AI hardware manufacturing, data infrastructure and high-performance computing could play a crucial role in positioning India as a global AI and deep-tech hub, Taxmann said.

Given limited headroom for sweeping tax cuts, the budget is likely to rely on targeted tax incentives to spur innovation. A key expectation from the AI ecosystem is the restoration of weighted tax deductions for research and development, or the introduction of new R&D tax credits similar to those offered by OECD countries. Such measures could boost investments in generative AI, sustainable technologies and deep-tech research, Taxmann added.

Taxmann anticipated that the concessional 15% corporate tax rate for new manufacturing units may be extended to AI and other futuristic sectors.

A differentiated, low-tax regime for companies operating in advanced technology domains could enhance India’s attractiveness to global investors seeking alternatives to China, Taxmann said.

AI-focused startups are likely to look to Budget 2026 for simplified compliance norms, easier access to early-stage capital and targeted policy support. Streamlining regulatory requirements and improving the funding environment could help accelerate innovation while reducing operational friction for young companies, Taxmann added.