FM proposes tax holiday for global cloud, data centre companies for 20 years

The government has proposed a tax holiday for data centres and cloud service providers for the next 20 years to boost investments from the Big Tech and data centre companies.  

“Recognising the need to boost critical infrastructure and boost investment in data centres, I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centres from India. It will, however, need to provide services to Indian customers through an Indian reseller entity,” Finance Minister Nirmala Sitharaman said on Sunday.  

During the Union Budget 2026 presentation, the Minister also proposed providing a safe harbour of 15% on cost, in case the company providing data centre services in India is a related entity.

A tax holiday means exemption from a certain type of tax for a period of time, which may include corporate taxes, income taxes, or specific profit-sharing charges. 

While the details of the nature of relief will emerge in the coming days, the announcement has come close on the heels of the industry seeking clarity on tax and regulatory uncertainties.

It is important to note that Big Tech firms Microsoft, Google, and Amazon have announced investments worth $70 billion in India in the last few months. These firms had made several representations to the government to clearly spell out whether data centres are attributed by tax authorities as ‘permanent establishment' for the cloud service providers (CSP).

The proposed tax holiday and safe harbour provisions are expected to address those concerns going forward. YourStory had previously reported on industry expectations from the budget on data centres.

"The core industry concern has been that standard hosting and colocation should not, by itself, be treated as creating business connection or permanent establishment exposure for foreign cloud providers when Indian operators are remunerated at arm’s length. On a broad reading, the Budget advances this agenda while also serving India’s economic interests," said Ashish Aggarwal, Vice President and Head of Public Policy, NASSCOM.

He added, "The proposed tax holiday till 2047 for foreign companies providing cloud services globally using Indian data centres signals a strategic push to attract export-oriented digital workloads into India, building domestic capacity, long-term capital investment and high-quality jobs. The 15% cost-based safe harbour for related party data centre services, in turn, supports predictable margins for routine infrastructure activity and reduces friction in scaling long-term contracts. Read together, these measures point towards a policy approach where India seeks to secure its fair return by taxing and remunerating the India-based infrastructure functions appropriately, while enabling global cloud service exports to grow from India without persistent interpretational overhang."