India Unveils 20-Year Tax Break for Global Data Centers

• Union Budget 2026 proposes a tax holiday until 2047 for foreign cloud companies using India-based data centres.

• Aims to attract global investment and strengthen India’s digital and cloud infrastructure.

• Global income of foreign providers exempt, while Indian reseller operations remain taxable.

• Policy boosts data centre investment, jobs, and positions India as a global cloud and AI hub.

  
  

In a significant policy signal aimed at strengthening India’s digital backbone, Finance Minister Nirmala Sitharaman has proposed a sweeping tax incentive for foreign cloud service providers as part of the Union Budget 2026. The proposal offers a tax holiday extending until 2047 for overseas companies that deliver cloud services worldwide, provided their operations are anchored in data centres located within India.

Unveiling the measure during her Budget address on Sunday, Sitharaman positioned the initiative as a strategic effort to draw international investment while underlining the growing importance of digital infrastructure. The government’s intent, she said, is to encourage global firms to base critical cloud operations in India and integrate the country more deeply into the global digital economy.

Under the proposal, foreign companies offering online services such as data storage, computing power, or software platforms would be able to establish data centres in India and generate revenue from customers around the world without having that global income taxed locally until 2047. At the same time, services provided to Indian customers would need to be routed through a domestic reseller entity, which would continue to be subject to Indian tax laws.

Officials explained that the policy is designed to address a longstanding challenge in taxing cloud businesses. Revenue Secretary Arvind Shrivastava noted that large cloud providers typically operate interconnected data centres across multiple countries, making it difficult to attribute global revenue to a specific location. Imposing taxes on worldwide income simply because a data centre is based in India, he said, could create uncertainty and discourage companies from investing further.

From the government’s perspective, the expansion of data centre infrastructure in India brings broader economic benefits, including increased scale, employment, and allied economic activity. While the foreign parent entities would enjoy the tax exemption on global earnings, the India-based data centre operations and reseller businesses serving domestic users would remain within the tax framework, preserving local revenue streams.

To further reduce ambiguity, the Budget also introduced a safe harbour rule that allows a 15% markup on costs in cases where the Indian data centre operator is a related party. This measure is expected to provide greater clarity on transfer pricing and reduce disputes between companies and tax authorities.

Industry leaders have largely welcomed the announcements, interpreting them as a clear signal that India intends to position itself as a global hub for cloud computing and artificial intelligence infrastructure. Executives in the IT sector said the Budget reflects a focused push to attract multinational firms to establish global capability centres in the country, supported by long-term tax incentives and additional certainty for smaller technology companies.

The real estate and infrastructure sectors also see the move as a boost for large-scale investments. Developers involved in data centre projects believe the extended tax horizon improves the financial viability of capital-intensive facilities, accelerates capacity expansion, and supports the creation of high-skilled jobs across the technology ecosystem.

Policy analysts and startup leaders argue that the certainty offered over the next two decades could help India compete more effectively with established data centre hubs such as Singapore and Ireland. With data centres requiring heavy upfront investment and long payback periods, a stable and predictable tax regime is seen as a critical differentiator.

The Budget proposal arrives against the backdrop of rising global commitments to India’s digital and AI landscape. Major technology companies have already announced multi-billion-dollar investment plans, spanning artificial intelligence, cloud services, and large-scale data centre development. Together, these announcements reinforce the government’s ambition to transform India from a major digital consumer market into a central pillar of the world’s cloud and AI infrastructure.