In a big push to position India as a global hub for digital infrastructure and cloud computing, Finance Minister Nirmala Sitharaman has announced a tax holiday extending until 2047 for foreign companies setting up or utilising data centres in India to provide cloud services. She made this announcement during her annual Union Budget speech at the Parliament.
Big incentive for global cloud providers
Presenting the Union Budget 2026-2027 in Parliament, Sitharaman proposed a tax holiday for foreign companies that provide cloud services to global customers from data centres located in India. The incentive aims to attract substantial investments in critical digital infrastructure, aligning with India's ambition to become a key player in the global data economy and support the growth of AI and cloud technologies.
"To boost global business and investment in critical infrastructure, we propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally from data centres in India," she stated in her Budget speech.
This announcement comes amid rising demand for data centres to power AI, cloud computing, and digital services, with India witnessing increased commitments from international tech giants.
The tax relief will apply on the condition that services provided to Indian customers are routed exclusively through an Indian reseller entity. This measure ensures that domestic entities benefit from the ecosystem while preventing direct competition bypassing local players.
Indian data centre push
The proposal requires foreign companies to use Indian data centre facilities for delivering cloud services worldwide. By mandating an Indian reseller for local customers, the government seeks to boost employment, technology transfer, and revenue generation within the country.
This is a strategic move to counter global competition and capitalise on India's growing data centre capacity, driven by demand from hyperscale operators. The long-term holiday till 2047 provides policy certainty and makes India an attractive destination for long-horizon investments in sustainable and high-capacity data centres.
Experts react to the new tax holiday scheme
"As India’s digital transformation accelerates, the need for scalable and sustainable data center infrastructure is growing rapidly.. Data centers are Capex heavy and India is likely to become a key destination for hyperscalers who are looking to expand esp in APAC and MEA regions. The announcent supports the long term planning and investment for hyperscalers.The reseller hook further supports tax sovereignty," Counterpoint analust Tarun Pathak explains.
"With the rapid rise of AI applications and increasing government regulations on data privacy, requiring data to be stored within India, the demand for data capacity to support these workloads has already surpassed supply. India generates about 20 percent of global data but hosts only 3 percent of global data center capacity, creating a massive supply-demand mismatch," he added.
"Data Centre is a sticky investment unlike promoting low value electronics contract manufacturing. This is a great announcement as it will attract long term commitments in India and contribute strongly towards making India the data centre hub of the country. There is immense potential in data centre infrastructure and with such measures India could evolve only next to US in terms of capacities and infrastructure. This will also position India as a global AI supply chain partner," TechARC analyst Faisal Kawoosa says.
In a related development to strengthen India's tech ecosystem, the Finance Minister announced the launch of India Semiconductor Mission (ISM) 2.0. The new phase focuses on producing semiconductor equipment and materials, enabling full-stack Indian intellectual property, and fortifying supply chains.
The government also proposed increasing the outlay for the Electronics Components Manufacturing Scheme to Rs 40,000 crore, capitalising on momentum where investment commitments have already doubled initial targets.
