The global semiconductor race is no longer just about manufacturing capacity; it is a complex battle of architectural design, specialized talent, and fiscal agility. Speaking at the SEMICON India 2026 summit, Sandeep Kumar, the CEO of L&T Semiconductor Technologies, delivered a compelling vision for India’s high-tech future. He emphasized that while India possesses the foundational “building blocks” to carve out a dominant position in the global semiconductor ecosystem, it must urgently bridge critical gaps in domain knowledge and global market exposure.
Kumar also addressed the prevailing anxieties surrounding artificial intelligence, asserting that AI is “not a hype” but a tangible, transformative reality. Drawing a historical parallel to the Industrial Revolution, he argued that technological shifts do not merely destroy jobs; rather, they elevate them, driving higher productivity and enabling workforce transition into higher-value roles. However, translating this technological optimism into commercial success requires more than just engineering talent. It demands a highly sophisticated fiscal and regulatory framework to support the massive capital expenditures (CapEx) and cross-border transactions characteristic of the semiconductor industry.
Bridging the Technology and Market Gap
According to Kumar, the current semiconductor boom is heavily driven by architecture. To capitalize on this, Indian talent must transition from basic backend support to advanced nodes and specialized domains. He specifically highlighted advanced analog systems, high-power technologies, and radio frequency (RF) systems—including millimeter-wave technologies—as the frontiers India must conquer.
The primary hurdle, however, is that the vast majority of semiconductor customers are located outside India. This geographic separation creates a knowledge gap. Kumar noted that true innovation comes from direct access to markets, understanding global customer pain points, and continuous market exposure. Bridging this gap requires Indian designers and engineers to collaborate seamlessly with international clients. From a business perspective, this international collaboration immediately triggers complex cross-border tax, customs, and Goods and Services Tax (GST) compliance obligations.
The Fiscal Underpinnings: CapEx, Import IGST, and ITC Realities
Developing advanced nodes and specialized RF or analog chips is an incredibly capital-intensive endeavor. Whether establishing a physical fabrication unit (fab) or setting up a state-of-the-art fabless design house, companies must import highly specialized machinery, electronic design automation (EDA) tools, and testing equipment. Under India’s indirect tax regime, these imports are subject to basic customs duties and Integrated GST (IGST).
For semiconductor companies, managing the cash flow associated with import IGST is a critical compliance challenge. Accumulating massive amounts of Input Tax Credit (ITC) on capital goods can severely strain working capital, especially during the long gestation periods typical of chip development. As India seeks to balance its trade ledger, optimizing the inflow of capital goods through efficient tax structures remains vital, a reality mirrored in how import IGST and export refunds shape the nation’s broader trade deficit.
To prevent working capital blockages, the government offers various export promotion schemes, such as the Export Promotion Capital Goods (EPCG) scheme and Duty Free Import Authorizations. However, maintaining compliance with these schemes requires meticulous documentation, rigorous tracking of export obligations, and flawless reconciliation of ITC. Any slip in compliance can lead to demand notices, interest penalties, and prolonged litigation with tax authorities.
Zero-Rated Exports and the ‘Intermediary’ Compliance Trap
Since a significant portion of India’s semiconductor design output is destined for global markets, most transactions qualify as “export of services.” Under GST law, exports are treated as zero-rated supplies, allowing companies to either export under a Letter of Undertaking (LUT) without paying IGST or claim a refund of the IGST paid on exports.
However, the path to claiming these refunds is fraught with regulatory hurdles. One of the most prominent risks for Indian chip design houses is the potential classification of their services as “intermediary services” under Section 2(13) of the IGST Act. If tax authorities interpret the Indian entity’s role as merely facilitating the supply of services between a foreign client and end consumers, the service is taxed at 18% GST, and the benefit of zero-rating is lost. To mitigate this risk, semiconductor design firms must carefully draft their service level agreements (SLAs) to establish that they are acting as independent service providers rendering principal-to-principal services rather than acting as agents or brokers.
EDA Software, Cloud Services, and OIDAR Compliance
Modern semiconductor design is entirely dependent on sophisticated EDA software suites, which are increasingly delivered via cloud-based Software-as-a-Service (SaaS) models. When Indian design firms license this software from foreign developers, the transactions are subject to the Reverse Charge Mechanism (RCM) under GST, where the importer of the service is liable to pay the tax.
For fabless design houses relying on foreign-sourced design suites, understanding these levies is as critical as navigating the shifting landscape of SaaS taxability and OIDAR compliance. Ensuring that the correct GST rate is applied under RCM, and that the corresponding ITC is claimed in a timely manner, is essential to maintaining cost competitiveness in a low-margin, high-volume global market.
Conclusion: A Synchronized Approach to Tech and Tax
As Sandeep Kumar highlighted at SEMICON India 2026, India has the foundational building blocks to lead the next wave of semiconductor innovation. However, technological capability must be matched by administrative and fiscal efficiency. By streamlining GST refund processes, providing clarity on the taxability of international design collaborations, and easing the import of capital goods, India can create a highly competitive environment for global semiconductor giants and domestic startups alike. Only through a synchronized approach to technology, talent, and tax compliance can India truly bridge the market gap and emerge as a global semiconductor leader.
Frequently Asked Questions
Sandeep Kumar stated that AI is a reality and not a hype. Drawing parallels to the Industrial Revolution, he argued that technological shifts historically expand businesses, meaning people will not ultimately lose jobs but will instead become more productive and create higher-value things.
According to Sandeep Kumar, the current semiconductor boom is being driven by architecture.
India needs to move into advanced nodes and specialized technologies, including advanced analog, very high-power technologies, and a broad range of radio frequency technologies going all the way up to millimeter-wave technologies.
The knowledge gap exists because many of the large semiconductor customers are located outside India, which limits direct market access. It can be resolved by increasing global market exposure for Indian talent, allowing them to learn the markets, understand customers, and solve customer-specific problems.
