NEW DELHI, Feb 2, 2026, 20:41 (IST)
- Foreign firms serving global cloud customers from India-based data centres get a tax holiday extending through 2047
- Sales to Indian customers must pass through an Indian reseller, while related-party data centre services are assigned a fixed 15% margin
- The government markets this shift as a strategy to attract sustained AI and cloud infrastructure investments to India
India is set to grant a tax holiday—exempting foreign companies from Indian income tax on cloud services—until 2047. This applies to businesses renting computing and storage over the internet to overseas customers, provided they use data centers with servers located in India. Finance Minister Nirmala Sitharaman confirmed the government’s plan to “provide (a) tax holiday till 2047” for qualifying firms. Vaibhav Gupta, partner at Dhruva Advisors, noted the move “helps in bringing clarity” and “lends stability” to foreign companies’ tax situations. Google announced a $15 billion investment in an AI data center project in Andhra Pradesh, with Microsoft and Amazon also pledging billions for data centers in India. IT Minister Ashwini Vaishnaw described data centers as “a major strength” for the nation. (Reuters)
The budget pitch is straightforward: lift the tax uncertainty, then attract more long-term capital to a sector turning into a bottleneck for AI-driven services. Officials also aim to reduce the risk of future conflicts over whether hosting servers in India might subject a foreign company’s global income to Indian taxation.
The budget speech outlined that the benefit targets services delivered from India-based data centres to clients outside India. For sales to Indian customers, the transactions must go through an Indian reseller and will be taxed domestically, the speech noted. Additionally, it introduced a “safe harbour” provision: a fixed 15% profit margin on costs that tax authorities will accept to minimize disputes, applicable when the India-based data centre service provider is a related party.
Much depends on definitions. Who exactly counts as a “cloud service” provider, what it means to “use data centre services from India,” and how authorities enforce the reseller rule will determine just how open the door really is.
The Ministry of Electronics and IT released a statement highlighting that about $70 billion in investments are already in progress within India’s data centre ecosystem, with another $90 billion announced. It added that the “long-term policy framework for data centres up to 2047” aims to establish India as a top destination for AI and cloud infrastructure. (Press Information Bureau)
Vaishnaw told reporters after the budget that investments in data centres might jump to $200 billion, up from the $70 billion “currently being executed.” He also noted growing interest from AI server makers and described the tax holiday as “a major boost” for data centres, including those focused on AI. (Moneycontrol)
Foreign cloud companies aren’t drawn only by the headline tax break. The setup also isolates India-focused operations through an Indian reseller, offering multinationals a stronger case that overseas sales shouldn’t incur Indian tax just because the computing takes place within India.
There’s a catch, and it’s not about taxes. Data centres consume vast amounts of power, water, and land. These limits often determine where projects get built and how quickly they can expand, no matter the tax breaks. (Ndtv)
Execution risk remains a question mark. Budget proposals lack detailed specifics, and companies will be closely monitoring how fast tax regulations, compliance processes, and dispute-resolution frameworks get finalized.
Right now, India is signaling to global cloud giants that it aims to be a hub for delivering digital services abroad, not merely a market for them. To back this up, the country is offering a long-term tax guarantee spanning decades.
