Nasscom urges Budget 2026 to expand ESOP tax relief and clarify cloud-tax rules for foreign providers
Nasscom has asked the government to widen ESOP tax-deferment benefits to more DPIIT-recognised startups and to remove ambiguity around whether using Indian data centres creates a taxable presence for foreign cloud providers.
- Reporting desk
- Health India Network News Desk
- First published
Tech industry’s budget pitch: talent, equity and regulatory certainty
Ahead of the Union Budget 2026, IT industry body Nasscom has urged the government to focus on startup-friendly tax policies and clearer rules for cloud computing, according to a Times of India report citing PTI. The recommendations are framed as competitiveness issues: how quickly young firms can hire, and how confidently global cloud providers can serve customers while investing in Indian infrastructure.
A central request is to broaden ESOP-related tax deferment so that it meaningfully covers a larger share of India’s startup base. Nasscom’s memorandum argues that equity compensation is one of the most practical tools startups have for attracting and retaining skilled talent when cash is scarce and competition from larger employers is intense.
ESOP tax deferment: widen the eligibility net
The report said Nasscom wants ESOP tax-deferment provisions extended to all DPIIT-recognised startups, rather than being limited to those certified by the Inter-Ministerial Board. It also asked for ESOP costs to be deductible under Section 37 of the Income Tax Act, which would make equity-based pay structures easier to deploy at scale.
The industry’s underlying argument is that if policy treats ESOPs as a mainstream compensation tool rather than a niche benefit, startups can compete for talent without distorting their cash flows or delaying growth decisions.
Cloud rules: permanent establishment clarity
Nasscom also sought explicit clarification on whether hosting or co-location services from Indian data centre operators creates a “permanent establishment” for foreign cloud providers. The industry body’s push reflects a broader demand for predictable tax treatment as India’s data centre footprint grows and more cloud workloads shift into Indian facilities.
If the government provides clearer definitions and thresholds, it could reduce compliance risk for providers and customers alike—potentially supporting additional investment in local cloud and data centre capacity.