In one of the most forward-looking moves of Union Budget 2026, Finance Minister Nirmala Sitharaman has proposed a long-term tax holiday for foreign cloud service providers — stretching all the way till 2047. The incentive is aimed at companies that serve global customers while using data centre infrastructure based in India, signalling a major push to position the country as a global digital and AI backbone.

Announcing the measure during her Budget speech on Sunday, Sitharaman said the policy is designed to attract international investment while recognising the growing importance of digital infrastructure in the global economy.

What the Tax Holiday Means in Simple Terms

Under the proposed framework, foreign companies offering cloud services — such as data storage, computing power, or software delivered online — will be allowed to earn revenue from global customers without their global income being taxed in India, provided their data centre operations are located in the country.

The tax exemption will remain in place until 2047, offering nearly two decades of policy certainty — a rarity in global tax regimes.

However, the benefit comes with a key condition:

• Services provided to Indian customers must be routed through a local reseller entity, which will continue to be taxed in India as usual.

This structure ensures domestic revenues remain within the tax net while making India attractive for global-facing operations.

Why the Government Is Making This Move

Explaining the rationale, Revenue Secretary Arvind Shrivastava said global cloud companies typically operate data centres across multiple countries, making it difficult to link revenue generation to a single location.

Taxing a company’s global income simply because a data centre is located in India, he noted, could create uncertainty and discourage investment.

According to the government, the presence of large-scale data centres in India is a net economic positive, driving infrastructure growth, employment, and technology spillovers — even if the global entity itself is not taxed on overseas revenues.

Additional Clarity on Transfer Pricing

To further reduce friction, the finance minister also announced a 15% safe harbour on cost for cases where the Indian data centre service provider is a related entity. This move is expected to offer much-needed certainty on transfer pricing, an area that has traditionally been a source of disputes for multinational firms.

Officials said this would make compliance simpler and reduce litigation risk, especially for companies operating complex global structures.

Industry Sees a Clear Signal to Global Tech Giants

Industry leaders have widely welcomed the announcement, calling it a decisive step toward making India a global hub for cloud and AI infrastructure.

Deepak Bhalla, Executive Vice President and Chief Risk Officer at Infosys, said the Budget reflects a clear focus on the IT sector. He noted that tax holidays for data centre companies and safe harbour provisions for smaller IT firms would encourage global capability centres (GCCs) to scale up in India.

Real estate and infrastructure players echoed similar sentiments. Amit Sarin, Managing Director at Anant Raj Limited, said the policy reflects long-term commitment and will improve the viability of capital-intensive data centre projects, leading to faster capacity creation and high-quality job generation.

Competing With Global Data Centre Hubs

Market experts believe the extended tax certainty could help India compete more effectively with established data centre hubs such as Singapore and Ireland.

Ritvik Dashora, CEO of Tradomate, pointed out that data centres have long payback periods, making policy stability crucial. A tax holiday lasting till 2047, he said, positions India not just as a digital consumption market but as a global backend for cloud and AI infrastructure.

Big Tech Bets Add Momentum

The Budget announcement comes at a time when global technology giants are already committing significant capital to India’s digital ecosystem:

• Microsoft has pledged $17.5 billion for AI-related projects over the next four years
• Amazon plans to invest $35 billion over five years in AI-driven operations
• Google has committed $15 billion toward developing data centres in partnership with Adani Group and Bharti Airtel
• Media reports also suggest Meta is developing a massive 500 MW data centre facility in India

Final Words

With a tax holiday extending till 2047, India has sent one of its strongest signals yet to global cloud and AI players. The message is clear: build here, scale here, and serve the world from India — without fear of unpredictable taxation.

If execution matches intent, this Budget move could reshape India’s role in the global digital economy, transforming it from a fast-growing market into a foundational hub for cloud computing and artificial intelligence.