Budget 2026: Nasscom pushes for startup-friendly tax policies, cloud regulation clarity

Ahead of the Union Budget 2026, the IT industry association Nasscom has urged the government to address pressing tax concerns for startups and technology firms. As reported by PTI, the Nasscom wishlist for Budget 2026 includes extending the Employee Stock Option Plan (ESOP) tax deferment to more startups, clarifying rules around the tax treatment of foreign cloud providers using Indian data centers. Expanding the talent poolAs per the report, Nasscom has asked for ESOP tax deferment to be extended to all DPIIT-recognised startups and it should not be limited to just the ones certified by the Inter-Ministerial Board. Presently, fewer than 4,000 startups qualify for 2020 ESOP deferment window, out of the 1.59 lakh recognised by DPIIT. “ESOPs enable startups to attract high-quality talent. Extending deferment will make the regime meaningful and help them compete with larger businesses,” Nasscom said in its pre-Budget memorandum.Along with this, the association also wants ESOP costs to be deductible under section 37 of the Income Tax Act, making equity-based compensation more viable for young companies.Cloud Tax clarityThe report further states that Nasscom has also asked for explicit clarification on hosting or co-location services from Indian data centre operators and does not create a permanent establishment for foreign cloud providers. The group argues that arm’s-length payments to Indian operators fully cover India-based functions, and foreign providers neither control premises nor conduct business locally.This clarification, Nasscom said, is crucial to avoid unintended tax liabilities that could discourage global cloud providers from expanding operations in India.Other key recommendations