Stainless steel (SS) are extensively used for healthcare, hygiene and surgical applications due to their excellent corrosion resistance and adequate mechanical strength. Among this class SS 316 L is employed most widely, due to highest corrosion resistance, good mechanical properties, resistance to sensitization and ease of fabrication. To incorporate antimicrobial characteristic in SS 316 L based surgical tools a nanocomposite layer comprising of Silver (Ag) and Tantalum oxide (TaxOx) has been deposited by using Physical Vapor Deposition (PVD) magnetron sputtering. Delamination of ceramic layers on SS 316 L substrate is one of the major limitation arising from insufficient crystallization and poor adhesion strength. PVD magnetron sputtering has been employed to develop 5.49 mu m thick Ag-TaxOx nanocomposite layer on SS 316 L. Substantially improved adhesion strength has been achieved by controlling thermal treatment. The microstructure, surface and phase analysis of as-sputtered and annealed thin films has been carried out to determine the characteristics of the developed layer. A nanocomposite layer on SS 316 L substrate comprising of Ag and TaxOx has been achieved by releasing O-2 during deposition. Thermal treatment was performed at 300, 400, 500 and 600 degrees C which progressively increased the crystallinity and segregation of Ag at the surface. Highest adhesion strength was achieved by annealing the coated samples at 400 degrees C, which exhibited four-fold increased adhesion strength when compared to as-deposited layer. The precipitation of a new phase Silver tantalum oxide (AgTaO3) was observed for the samples annealed at temperature above 400 degrees C, which may be responsible for the decrease in adhesion strength.