Budget 2026:
India offers 20-year tax holiday to foreign cloud firms to boost data centre investments
Feb 1, 2026
Synopsis
The FM said in her Budget speech that this is being done to attract long-term capital and bolster India’s rapidly expanding data centre ecosystem. Sitharaman proposed a 15% safe harbour on costs for data centre services provided by related entities, giving foreign cloud firms greater tax certainty and operational efficiency in India. This comes in the background of a wave of investments in India’s data centre industry, led by AI and regional data protection laws.
In a major push to attract global data centre investments, the Indian government has proposed a 20-year tax holiday for foreign companies providing cloud services from India.
Announcing the measure in her Budget 2026 speech, finance minister Nirmala Sitharaman said the incentive is aimed at drawing long-term capital and strengthening India’s rapidly expanding data centre ecosystem.
“To promote India as a global data centre hub, any foreign company providing cloud services to customers worldwide using data centre services located in India will be eligible for a tax holiday up to 2047,” Sitharaman said, adding that such firms will be required to serve Indian customers through an Indian reseller entity.
The government also proposed a 15% safe harbour on cost in cases where data centre services are provided by a related entity of the foreign cloud firm.
The provision is likely to benefit foreign cloud companies structuring their India operations through group entities by offering tax certainty and operational efficiency.
The announcement comes at a time when India is witnessing some of the largest data centre investments globally, led by cloud computing giants such as Google, Microsoft, and Amazon Web Services, which have together committed about $40 billion in investments in 2025 alone.
Demand for digital infrastructure, fuelled by AI and regional data protection laws, has unleashed a new wave of investments in India’s data centre industry.
Global hyperscalers and Indian conglomerates such as Reliance, Adani, Tata, and L&T are set to invest more than $70 billion in the next five to seven years in the domestic data centre industry, taking total capacity to about 9 gigawatts (GW) from one GW now.
Long seen as an undervalued market, India is now emerging as one of the world’s most attractive data centre destinations because of cheap power, rapid capacity build-out, and unmatched engineering talent.
Besides, data consumption in India has zoomed from eight exabytes in FY17 to 229 exabytes in FY25, led by OTT platforms, digital payments, social media, and ecommerce. The data law and expected AI adoption could be the next big levers for data centre growth in India.
[The Economic Times]
