The Union Budget 2026 introduces a long-term tax holiday for foreign companies sourcing data centre services from India, extending up to 2047. To qualify, firms must provide global cloud services while serving Indian customers via a local reseller.
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The Budget proposed a tax holiday up to 2047 to any foreign company that provides services to any part of the world outside India by procuring data centre services in the country.
FM Speech Highlights
“Recognising the need to enable critical infrastructure and boost investment in data centres, I propose to provide a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity. I also propose to provide a safe harbour of 15 percent on cost in case the company providing data centre services from India is a related entity,” Finance Minister Nirmala Sitharaman said in her speech.
According to Aditi Goyal, Partner – Tax Practice, Trilegal, tax holidays, safe harbour margins, and exemptions for data centres, cloud service providers, electronic component manufacturers, and toll manufacturing are expected to enhance India’s competitiveness and catalyse foreign investment into these capital-intensive sectors.
Foreign Investment Focus
Piyush Prakashchandra Somani, Promoter, MD and Chairman, ESDS, explained that the tax holiday is designed to attract foreign companies to establish data centre operations in India and serve their international customers from Indian soil. Existing Indian cloud service providers who have been building and operating data centres in India for years do not receive any tax benefit from this provision. The incentive is aimed at attracting foreign investment and global workloads to India, not at supporting the domestic cloud industry that already operates here.
“India offers competitive real estate costs, abundant technical talent, improving power infrastructure, and a massive domestic market that foreign players can access through Indian reseller entities. The tax holiday sweetens this proposition significantly for global hyperscalers who are today choosing between data center locations in Southeast Asia, the Middle East, and Europe,” he said.
Ecosystem Benefits
While there is no direct tax benefit to India’s domestic cloud industry, the opportunity lies in the ecosystem this creates. When global players build data centre capacity in India, it raises overall infrastructure standards, creates thousands of skilled jobs, strengthens the supply chain, and makes India a more credible destination for enterprise cloud services worldwide.
India already contributes nearly 20 per cent of the global data economy, while the global data centre market stands at approximately 120 GW. Even capturing one per cent of this opportunity highlights the scale of the current capacity gap and the headroom for growth, said Narendra Sen, Founder & CEO, RackBank Data Centres, an AI Infrastructure Company.
Infrastructure Investment
With deployed capacity still at an early stage, India can reach nearly 10 GW over the next five years, translating into investments of $70–100 billion in data centre infrastructure. Long-term tax certainty through the proposed tax holiday significantly improves return visibility for global investors, including infrastructure funds and real estate-focused capital, and makes Indian data centre platforms more attractive as a long-term asset class.
“India’s advantage is not limited to policy support. Build costs in India are among the lowest globally at approximately $5 million per megawatt, compared to $10–12 million in several international markets, materially improving project economics. Combined with domestic manufacturing capability, reduced import dependence, and a strong clean energy ecosystem across solar and wind, the operating environment is structurally competitive,” he said.
Fiscal Predictability
Pratap Mane, President & Country Head – India, Colt DCS, shared that this proposal provides the fiscal predictability essential for committing to large-scale, capital-intensive developments, directly supporting the company’s ongoing expansion and efforts to deliver more than 250 MW of AI-ready Data Centre for our Hyperscale Clients in India.
Safe Harbour Boost
Further, the 15% safe harbour for related-party data centre services streamlines operations for international players building in India, reducing complexity and enhancing cost efficiency in a high-growth environment. This, he said, is a catalyst for India’s rise as a preferred global hub.
However, Somani argued, policymakers should also consider how India’s homegrown cloud companies — who have been investing in this infrastructure long before these incentives — can be supported to compete on a level playing field.
Published on February 1, 2026
