India proposes tax holiday for data centres until 2047.

In the Union Budget 2026–27, Finance Minister Nirmala Sitharaman announced a proposed tax incentive aimed at positioning India as a global hub for data centres and cloud infrastructure. The proposal introduces a long-term tax holiday for foreign companies using Indian data centres to deliver cloud services globally, with the aim of enhancing tax certainty and attracting investment. The proposal is pending parliamentary approval, with implementation expected by end of March or early April 2026.

Key features of the proposal

The proposed framework includes the following elements:

• Tax holiday until 2047: Foreign companies providing cloud services to global customers through data centres located in India will be exempt from tax on such income.
• Domestic service requirement: To qualify, foreign providers must serve Indian customers through a locally incorporated reseller entity.
• 15% safe harbour provision: Where data centre services are provided by a related Indian entity, a safe harbour margin of 15% on costs will apply, offering clarity on transfer pricing arrangements.
• Eligibility criteria for infrastructure: Data centres must be specified or notified and typically owned and operated by Indian entities.

Policy rationale and investment outlook

The announcement addresses a long-standing concern among foreign investors regarding the potential taxation of global income arising from the use of infrastructure located in India. By removing this uncertainty, the proposal is expected to provide greater tax certainty for multinational cloud providers and reduce a key barrier to entry.

At the same time, the measure is likely to encourage long-term capital investment in digital infrastructure. India has already attracted growing interest from global technology companies, and the introduction of a tax holiday further reinforces its broader ambition to position itself as a leading destination for data centres and AI-driven services.

Strategic significance

The proposal reflects a broader policy shift recognising data centres as critical infrastructure underpinning the digital economy. In doing so, it strengthens India’s competitiveness as an alternative destination for cloud infrastructure, particularly as companies look to diversify beyond established markets in North America, Europe, and parts of Asia.

The policy also balances foreign participation with domestic economic integration. The requirement for foreign providers to serve Indian customers through a local reseller entity ensures that Indian businesses remain embedded within the value chain, supporting local industry development alongside inbound investment.

Considerations and challenges

While the proposal is expected to drive investment, several practical considerations remain. Data centre operations are resource-intensive, requiring reliable access to power, water, and land, which may present challenges in certain regions.

In addition, the effectiveness of the regime will depend on clear implementation, including the notification of eligible data centres and consistent tax administration. Businesses will also need to carefully structure their operations, particularly in relation to reseller arrangements and transfer pricing, to fully benefit from the incentives once enacted.

Outlook for investment and implementation

The proposed tax holiday reflects the government’s focus on developing India’s digital infrastructure and attracting sustained investment into the sector. It also forms part of a broader effort to strengthen the country’s position in global data and cloud services.

The extended duration of the measure, running until 2047, provides a level of long-term visibility that is likely to be an important consideration for foreign investors undertaking large-scale infrastructure investments. Given its strategic importance, the proposal is widely expected to receive parliamentary approval.

For multinational businesses, this may create opportunities to expand cloud operations in India within a more predictable tax environment. As further details and implementation guidance emerge, businesses should consider how their operating structures align with the proposed framework.