Budget 2026–27 introduces long-term tax incentives for foreign cloud providers using India-based data centres as the government pushes to position India as a global AI and digital infrastructure hub.
India has unveiled a long-term tax incentive framework aimed at attracting global cloud and AI infrastructure investments, marking one of the government’s most significant policy pushes yet to position the country as a major digital infrastructure hub.
Under the Union Budget 2026–27, eligible foreign cloud service providers using India-based data centres for global operations will receive a tax holiday extending until 2047. The measure is part of a broader strategy to strengthen India’s role in global digital value chains while accelerating investments in cloud infrastructure, AI computing capacity, semiconductors, and electronics manufacturing.
The policy comes as countries worldwide compete aggressively to attract large-scale AI and cloud infrastructure projects amid rising global demand for computing power and data processing capabilities.
According to the government, foreign cloud companies routing global cloud operations through India-based data centres will not be subject to Indian taxation, provided they meet specified eligibility conditions. However, services provided to Indian customers must continue to be routed through Indian reseller entities, ensuring domestic transactions remain taxable under existing rules.
The exemption will apply from Tax Year 2026–27 through Tax Year 2046–47, providing nearly two decades of policy certainty for multinational technology companies considering long-term infrastructure investments in India.
The framework also establishes regulatory conditions for participation. Foreign cloud providers must procure data centre services from Indian companies operating facilities within India, and the facilities must be notified by the Ministry of Electronics and Information Technology (MeitY). Services to Indian users must additionally be delivered through an Indian reseller entity.
The move reflects India’s growing ambition to compete with established digital infrastructure markets in North America, Europe, and parts of Asia. Global spending on AI-oriented data centres has surged as enterprises scale generative AI, cloud computing, enterprise analytics, and digital services.
The government cited UNCTAD estimates showing that data centres accounted for more than one-fifth of global greenfield investment project values in 2025, with announced investments exceeding $270 billion globally.
India is already seeing rapid expansion in cloud and data centre infrastructure. Industry estimates referenced in the government note indicate that India’s cloud data centre capacity has reached around 1,280 MW and could grow four to five times by 2030. Investments worth nearly $70 billion are currently underway in India’s data centre sector, alongside an additional $90 billion in announced projects.
The tax policy forms part of a wider digital manufacturing and semiconductor strategy announced in the Budget.
The government has launched India Semiconductor Mission 2.0 with an allocation of ₹1,000 crore for FY2026–27. The programme focuses on semiconductor equipment manufacturing, materials production, design ecosystem development, and talent creation.
Separately, allocations under the Electronics Components Manufacturing Scheme have been increased from approximately ₹22,000 crore to ₹40,000 crore following strong industry participation, with 149 applications submitted under the scheme.
The Budget also proposes tax and operational simplification measures for India’s IT services sector, including grouping software development services, IT-enabled services, knowledge process outsourcing, and contract R&D services into a single Information Technology Services category.
A common safe harbour margin of 15.5% has been proposed, while the threshold for availing safe harbour provisions will increase from ₹300 crore to ₹2,000 crore. The government also plans automated approvals and faster processing under the Unilateral Advance Pricing Agreement framework.
India’s policy push comes amid increasing global competition around AI infrastructure.
The government note referenced a recent U.S. executive order focused on accelerating federal permitting for data centre infrastructure projects and highlighted research from Goldman Sachs indicating that Chinese AI and cloud firms are significantly increasing investments in data centres, AI chips, and related infrastructure.
For multinational cloud providers, the Indian framework offers long-term tax visibility in a sector characterised by high upfront investment, long payback periods, and rapidly rising demand for AI compute capacity.
For India, the policy is expected to support the country’s ambitions to become a strategic destination for hyperscale cloud infrastructure, AI workloads, enterprise technology operations, and advanced digital manufacturing over the next two decades.
Key Takeaways
• India will offer a tax holiday till 2047 for eligible foreign cloud providers using India-based data centres
• The framework aims to attract global AI and cloud infrastructure investments
• India’s cloud data centre capacity is projected to grow four to five times by 2030
• Nearly $70 billion of investments are already underway in India’s data centre sector
• Budget 2026–27 also expands semiconductor and electronics manufacturing initiatives
Source: Press Information Bureau, Government of India