India Grants Tax Holiday to Foreign Companies Using Data Centres

(INDIA) — Finance Minister Nirmala Sitharaman has announced a tax holiday until 2047 for eligible foreign cloud providers that route global operations through Indian data centres, paired with a 15% safe harbour rule and wider IT/ITeS safe harbour changes under Budget 2026-27.

1) Policy snapshot: a 2047 tax holiday tied to Indian data centres

Budget 2026-27 introduces a clear headline incentive: a long tax holiday for foreign companies that provide cloud services to customers outside India, so long as the underlying services are routed through data centres located in India.

A foreign cloud provider may be able to run global workloads through India and not pay Indian corporate tax on the profits from those global operations.

Think of it like choosing where the “engine room” for global cloud services sits. If the compute, storage, and related cloud delivery is routed through Indian data centres, the policy aims to make India the preferred base for that infrastructure.

The measure is framed as part of India’s wider push to expand data infrastructure and cloud capacity. It is also intended to attract more long-term commitments from large global providers, especially as demand rises for AI-heavy computing that needs power, connectivity, and physical server space.

2) Eligibility and operational requirements: routing and the reseller rule

Eligibility is not just about being a cloud brand with a presence in India. The core condition is operational: services must be routed through Indian data centres. That routing requirement is the gateway to the tax holiday.

A second operational rule is equally central. Services supplied to Indian customers must be channelled through a local reseller entity. That reseller is taxed under normal Indian tax rules.

The design draws a line between (a) global customers served through India and (b) Indian customers served inside India.

One way to picture it: India is being pitched as a base for global export-style cloud operations, while domestic sales remain within the usual tax net through a local intermediary.

Eligibility is tied to routing through Indian data centres and to Indian-customer sales being handled through a local reseller taxed normally. Policy interpretation can change, and eligibility may depend on future guidance and facts on the ground.

If you represent a foreign cloud provider, assess eligibility and plan data-centre routing via India; consult tax counsel for implementation details.

3) Safe harbour rule: related-party data centre arrangements and the 15% margin

Budget 2026-27 also addresses a common friction point in cross-border structures: related-party pricing. Many foreign cloud providers do not contract with an independent Indian data centre operator.

Instead, they may use an affiliated entity, or a group company, for data centre services.

To reduce disputes, the measure sets a 15% safe harbour margin on costs when the Indian data centre provider is a related entity to the foreign cloud company.

Safe harbour rules generally work like a pre-agreed pricing “zone.” If you stay within it, you typically face fewer transfer-pricing challenges.

In practice, this can matter as much as the tax holiday itself. A generous incentive can still trigger years of controversy if tax authorities later argue that profits were shifted or that service fees were mispriced. The 15% safe harbour is meant to give clearer ground rules.

4) Wider IT/ITeS safe harbour changes: higher threshold and automated approvals

Alongside cloud-specific measures, Budget 2026-27 broadens safe harbour rules for IT/ITeS. Two changes stand out.

First, the safe harbour threshold rises to ₹2,000 crore from ₹300 crore. That shift potentially brings far more mid-to-large IT/ITeS operators under a simpler compliance umbrella.

Second, approvals are described as automated. For businesses that qualify, automated approvals can mean fewer procedural bottlenecks and less time waiting for administrative clearances.

Taken together, these moves signal a preference for predictable, rules-based compliance in tech services. For foreign companies and multinational groups, predictability is often the deciding factor when choosing where to place servers, teams, and contracts.

5) Strategic rationale: cloud and AI ambitions, plus big-ticket investment signals

Nirmala Sitharaman’s tax holiday fits into a bigger story: India’s push to scale infrastructure that can support cloud and AI workloads. AI systems need high-density computing, fast networks, and stable power. Data centres sit at the center of that ecosystem.

The Budget messaging also lands at a time when major firms have already flagged large investment plans connected to India’s data infrastructure build-out:

• Microsoft: $17.5B over the next 4 years
• Amazon: $35B over the next 5 years
• Google: $15B with Adani and Bharti Airtel
• Meta: a 500MW facility

These numbers function as benchmarks in the public debate. They set expectations for what “serious” infrastructure commitments look like, and they help explain why India would pair industrial ambitions with tax certainty.

Industry voices have framed the move as a way to pull global cloud capacity into India while keeping India competitive as a place to host and export digital services. DIPA and DE-CIX India have both been associated with public praise of the policy direction, describing India as a growth hub for AI and a driver of a $3 trillion digital economy.

A quick clarification for remote workers: this is corporate tax policy aimed at cloud firms and data infrastructure. It is not a digital nomad visa program, and it does not set rules for individual residence through remote work.

6) Official clarifications and scope limits: 2047, not 2056

Talk of long tax holidays can quickly turn into rumor. One claim circulating in policy chatter has been a “30-year holiday to 2056.” Official statements tied to Budget 2026-27 do not confirm that. The public policy line is a tax holiday until 2047.

That distinction matters for planning. Data centre investments are long-lived assets, and contract structures can run for many years. Firms weighing India against other jurisdictions will model the timeline closely.

Official statements specify a tax holiday until 2047. Any broader timeline claims, or changes in how eligibility is read, could alter expected benefits and should be checked against updated Ministry of Finance guidance.

Budget 2026-27 also places this measure alongside other tech-industrial efforts, including AI schemes like Bharat-VISTAAR and increased electronics manufacturing outlays. The common thread is capacity-building: compute, chips, networks, and software services feeding into a domestic-and-export digital economy.

7) Policy framing and timeline: Budget speech on February 1, 2026

Sunday’s Budget speech on February 1, 2026 sets the formal policy frame for the 2047 tax holiday and the related safe harbour rules.

For foreign companies evaluating India as a location for cloud delivery, the practical next step is translating the headline promise into operating design: where workloads are routed, how Indian customer sales are structured through a reseller, and how related-party data centre charges fit within the 15% safe harbour.

The planning window is long. The compliance details will decide who benefits.