New Delhi, Feb 1 (PTI) The Union Budget on Sunday proposed a 20-year tax holiday for foreign cloud service providers using data centres in India and rationalised the safe harbour framework for IT firms,
as the government moved decisively to position the country as a global hub for AI, GCCs, and digital infrastructure.
The long-term incentives to foreign cloud and tech giants are expected to turbocharge investments in cutting-edge data facilities and digital infrastructure.
IT Minister Ashwini Vaishnaw said he expects USD 200 billion investment to flow into data centres - and it is also seen as sharpening India's edge in the global AI race, at a time when New Delhi is keen to take centre stage in global discourse on Artificial Intelligence.
Alongside other sweeteners for tech and GCCs, including a unified 15.5 per cent safe harbour margin for all sub-sets of IT services and enhanced safe harbour thresholds, the Budget measures are aimed at drawing global investments while ensuring tax certainty and alignment with international norms.
The country has seen a surge of major data centre investment commitments over the past year as the country races to build digital infrastructure on a global scale. Tech titans like Google have pledged around USD 15 billion to establish an AI-ready data centre hub in Andhra Pradesh, while Microsoft is investing USD 17.5 billion to expand cloud and AI infrastructure in the country.
"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," Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2026-27.
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 per cent on cost in case the company providing data centre services from India is a related entity," the Finance Minister said.
Put simply, data centres are secure facilities filled with powerful computers and servers that store, process and transmit digital data for services -- from emails and banking all the way to streaming and cloud platforms.
With AI, cloud computing and digital payments growing at a phenomenal pace, data centres are becoming just as critical as roads and power plants, forming the backbone of the global digital economy.
"We are expecting maybe even USD 200 billion of investment in data centres. Already, as I said, USD 90 billion dollars is announced, 70 billion is already getting into construction. So, with this announcement and the simultaneous announcement on nuclear power, this will be a very big journey," Vaishnaw said.
India has also set its sights on indigenous AI chips, the minister said. Microsoft India and South Asia President Puneet Chandok believes the strong focus on data centres, cloud, and sovereign-ready AI infrastructure is a clear signal of intent to scale secure and resilient digital capacity across the country.
This strengthens trust, attracts long-term investment, and enables AI adoption across public and private sectors, Chandok said, lauding the Union Budget 2026 that placed AI, services, and digital infrastructure at the centre of India's 'Viksit Bharat' journey.
The Budget, he noted, clearly recognises that technology-led, AI-driven growth will be critical to sustaining India's economic momentum in the years ahead.
"At Microsoft, we are investing in growing and building hyperscale AI infrastructure and skilling to help power the next billion Indians. Our ambition remains to support India's transition from the world-class Digital Public Infrastructure to AI Public Infrastructure, enabling innovation that is secure, inclusive, and impactful at the national scale," he added.
Industry body Nasscom highlighted that the Budget makes an important intervention to strengthen India's cloud and digital infrastructure ecosystem.
"The proposal for a tax holiday till 2047 for foreign companies providing cloud services to customers globally using data centre services from India, with services to Indian customers routed through an Indian reseller entity, sends a clear signal to attract long-term global investment and support the expansion of India’s compute capacity," according to the association.
Sindhu Gangadharan, SAP Labs India and Chairperson, Nasscom, said the Budget strengthens the policy backbone required for India to operate as a global technology and AI execution hub.
"The focus on cloud infrastructure and long-term clarity for cloud services directly addresses a core constraint in scaling enterprise platforms, the ability to run regulated, data-intensive workloads with confidence and continuity," Gangadharan said.
Bain and Company Partner Sudheer Narayan described the Budget as advanced and forward-looking as India's data centre market enters a step-change phase. The proposed tax holiday for data centres further underscores India's ambition to become a global hub for digital infrastructure.
"With India's data centre capacity projected to reach about 8 GW by 2030 from about 1.4GW as of Q2 of 2025, the opportunity for global and Indian data centre players is substantial," Narayan said.
ESDS, in a statement, explained that the tax holiday is exclusively 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 ESDS statement added.
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 centre locations in Southeast Asia, the Middle East, and Europe, it added. PTI MBI BAL
BAL
