MENA Newswire, NEW DELHI: India’s government has proposed a tax holiday through 2047 for foreign companies that provide cloud services to customers worldwide while running those workloads using data centre services based in India, a long-horizon incentive unveiled in the Union Budget 2026 to strengthen the country’s role in global digital infrastructure under Prime Minister Narendra Modi.
The proposal, announced in Parliament by Finance Minister Nirmala Sitharaman, sets out a clear condition for domestic business: qualifying foreign companies must provide services to Indian customers through an Indian reseller entity. The budget also proposes a safe harbour of 15% on cost when the company providing data centre services from India is a related entity, a provision aimed at simplifying the tax treatment of linked cross-border arrangements.
The measure places AI-era computing at the centre of India’s services agenda, tying tax policy to large-scale capacity for data centres and cloud computing. By explicitly covering global cloud services delivered from India-based facilities, the plan aligns the tax framework with the operational reality of modern workloads, where training and inference jobs can run in one country while serving users and enterprises in many others.
Information Technology Minister Ashwini Vaishnaw said data centres, particularly AI data centres, form a critical part of the infrastructure layer for AI. He said investments of around $70 billion are already underway in India, with announcements of around $90 billion, underscoring the scale of projects moving through construction and planning as India expands its compute and storage footprint.
Tax holiday for export cloud services
In her budget speech, Sitharaman said the proposal recognises the need to enable critical infrastructure and boost investment in data centres. The tax holiday is framed up to 2047 for foreign companies providing cloud services globally using data centre services from India, with the Indian reseller requirement for domestic customers set out as part of the eligibility structure. The safe harbour provision is paired with that framework to provide a predefined cost-plus margin for certain related-party data centre service arrangements.
The government’s policy push lands as major technology companies continue to expand their India footprint through announced investments in AI and cloud infrastructure. Google has announced an AI hub in Visakhapatnam, Andhra Pradesh, backed by a $15 billion investment that includes a purpose-built data centre campus designed for large-scale compute. Amazon has announced plans to invest more than $35 billion across its businesses in India through 2030, and Microsoft has announced a $17.5 billion commitment to build out cloud and AI infrastructure and partnerships in the country.
Support for India’s data centre ecosystem
The tax holiday sits within a broader set of budget measures presented as reforms to support the services sector and reduce friction for technology-led exports. The budget highlights steps such as grouping information technology services under a single category with a common safe harbour margin, increasing the safe harbour threshold for IT services to ₹2,000 crore from ₹300 crore, and moving safe harbour approvals for IT services to an automated, rule-driven process. Together, these steps formalise rules that companies can apply without renegotiating fundamentals transaction by transaction.
For Modi’s government, the 2047 horizon links the incentive to a national timeline that many policy programmes use as a long-term benchmark. The cloud and data centre proposal adds a tax certainty layer to India’s wider digital build-out, which already includes large-scale digital public infrastructure such as the Aadhaar digital identity system and the Unified Payments Interface, alongside expanding fibre networks and data centre capacity across multiple states.
