Nasscom urges Budget 2026 to expand ESOP tax relief for startups and clarify cloud taxation rules: report
Ahead of Union Budget 2026, Nasscom has called for wider ESOP tax deferment for startups and clearer tax treatment of foreign cloud providers using Indian data centres, arguing that policy certainty can support innovation and investment in India’s tech ecosystem.
Pre-Budget asks focus on startups and cloud policy certainty
Industry body Nasscom has urged the government to address startup and technology-sector tax issues in Union Budget 2026, with key requests including broader ESOP tax deferment and clear guidance on the tax treatment of foreign cloud providers operating through Indian data centres, according to a report.
The report said Nasscom’s pre-Budget memorandum argues that startup competitiveness depends on predictable tax policy—especially for young companies that rely on equity-based compensation to attract and retain talent in a tight market for experienced product and engineering roles.
ESOP tax deferment: making equity pay meaningful for employees
One major recommendation is expanding the scope of ESOP tax deferment so that more startups and employees can benefit. The argument is that if tax liabilities trigger too early—before employees can realise liquidity—ESOPs lose their practical value as a retention tool, particularly in early-stage firms.
The report also said Nasscom wants ESOP costs to be deductible under Section 37 of the Income Tax Act, which would improve the economics of equity compensation for startups and potentially make hiring more sustainable during periods when cash salaries are constrained.
Cloud regulation clarity to avoid uncertainty for global providers
On cloud services, Nasscom has asked for explicit clarification that hosting or co-location services from Indian data centre operators do not automatically create a “permanent establishment” for foreign cloud providers. The tech industry’s concern is that unclear rules can lead to inconsistent interpretations, raising compliance risk and discouraging new investment.
With India’s enterprise and public-sector cloud adoption rising, stakeholders want rules that are transparent and aligned with modern digital delivery models. Nasscom’s proposals aim to reduce friction for startups building on cloud infrastructure and for global providers expanding Indian capacity.