Union Budget 2026: FM Announces Foreign Cloud Firms Using Local Data Centers to Get Tax Relief Until 2047

Finance Minister Nirmala Sitharaman on February 1 proposed a tax holiday until 2047 for foreign companies that provide cloud services using data-centre infrastructure located in India.  

The proposal was announced as part of the Union Budget 2026-27 and applies to services offered to customers worldwide. 

Eligibility and Structure 

To qualify for the tax benefit, foreign cloud service providers will be required to serve Indian customers through an Indian reseller entity.  

The Budget also proposes a safe harbour of 15% on costs in cases where the Indian data-centre service provider is a related entity. These provisions are intended to clarify the tax treatment of such arrangements. 

Background to the Move 

The proposal comes at a time when global technology companies are expanding data-centre capacity to support artificial intelligence and cloud computing workloads.  

India currently generates close to 20% of the world’s data but hosts only around 3% of global data-centre capacity, indicating scope for further capacity addition. 

Recent Investment Plans 

Several companies have announced large investments in India’s data-centre space. Google has announced a $15 billion plan to build a 1 GW data-centre campus in Andhra Pradesh.  

Tata Consultancy Services has said it will invest about $6.5 billion over the next five years to set up 1 GW of AI-ready data-centre capacity. Amazon Web Services has committed $8.3 billion towards cloud infrastructure in Maharashtra. 

Taxation Concerns 

Industry bodies have previously flagged concerns around potential double taxation when foreign cloud service providers use Indian data centres.  

Nasscom has said such arrangements could be viewed as creating a permanent establishment in India, leading to tax disputes and compliance uncertainty. 

Market Estimates 

India’s data-centre market is estimated at about $10 billion, with revenues of around $1.2 billion in FY24, according to Anarock. Real estate firm JLL estimates that India will add nearly 795 MW of new capacity by 2027, taking total capacity to about 1.8 GW. 

Read More: Union Budget 2026: Direct and Indirect Tax Targets Raised to ₹44.04 Lakh Crore! 

Conclusion 

The proposed tax holiday and safe-harbour provisions aim to provide clarity on the tax treatment of foreign cloud service providers operating through Indian data centres as capacity expansion continues. 

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