Kolkata: In what could be a major boost to the cloud services sector, the FM proposed tax holiday for foreign companies that provide cloud services to global
customers by using data centres in India till 2047. The FM said this will also boost the growing data centre industry. “I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India,” she said. One of the conditions is that the companies have to provide services to Indian customers through an Indian reseller entity to be eligible for the tax holiday.
India’s data center sector is one of the sectors that has the potential to grow very fast in the few next years. Forecasts say capacity can grow to more than 8 GW by 2030 from approximately 1.28–1.4 GW in June-July 2025. This expansion will be driven by AI and cloud adoption, experts have said. This growth will also require $30 billion in investment. The tax holiday proposed by the government can trigger foreign investments in this sector.
Reduction in Minimum Alternate Tax
The FM also announced a small downward revision in MAT or Minimum Alternate Tax which companies pay. She said it will be made final tax and the rate will be pruned from the current 15% to 14%. The finance minister also announced that they will set up a joint panel of Corporate Affairs Ministry and CBDT for incorporation of income computation and disclosure standards.
Safe harbour to NRI
In another important announcement, the FM proposed in the budget to provide safe harbour to non-residents for component warehousing in a bonded warehouse at a profit margin of 2% of the invoice value. The resultant tax of about 0.7% will be much lower than in competing jurisdictions. The objective: harnessing the efficiency of just-in-time logistics for electronic manufacturing,
She has also proposed to provide exemption from income tax for 5 years, to any non-resident whoprovides capital goods, equipment or tooling, to any toll manufacturer in a bonded zone.
Nirmala Sitharaman mentioned that the threshold for availing safe harbour for IT services is being increased from Rs 300 crore to Rs 2,000 crore. Significantly, safe harbour margin is an acceptable operating profit margin which is determined by tax authorities and pertains to specific international transactions. It allows businesses to avoid detailed transfer pricing audits if they can satisfy the threshold. She also said that definition of accountants for safe harbour rules will be changed to promote home-grown accounting firms.
Sitharaman also mentioned that the tax collected at source rate on liquor, scrap and minerals has been rationalised to 2%.
