Budget 2026 introduces a transformative tax and policy framework aimed at positioning India as a global hub for cloud computing and data centre services. The headline proposal is a 21-year tax holiday, extending up to FY 2047, for foreign companies providing global cloud services using data centres located in India, subject to the condition that services to Indian customers are routed through an Indian reseller. In addition, a 15% cost-based safe harbour has been introduced for Indian resident entities providing data centre services to related foreign cloud service providers, significantly reducing transfer pricing disputes. These measures offer long-term tax certainty, encourage large-scale investments in hyperscale data centres, and align strongly with India’s Digital India and AI strategy. While the incentives promise zero or minimal tax exposure on eligible revenues, businesses must carefully reassess operating structures, permanent establishment risks, transfer pricing policies, and contractual documentation. Early planning and close tracking of subsequent notifications will be critical to fully leverage these benefits.
Key Budget Proposals affecting Data Centre Business in India –
- Twenty one year tax holiday upto FY 2047 to any Foreign Company providing cloud services globally by using data center services from India, provided services are provided to Indian customers through an Indian reseller entity
- 15% cost-based safe harbour to resident entities for providing data center services to a related foreign company who is providing cloud services to any part of the world outside India
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Budget 2026 – Impact on Data Centers & Cloud Business
- Major tax & policy push to make India a global cloud hub
- Focus on long-term certainty, tax holidays & safe harbours
- Strong alignment with Digital India & AI Strategy
Key Budget Proposals
- Twenty One year tax holiday upto FY 2047 to any Foreign Company providing cloud services globally by using data center services from India, provided services are provided to Indian customers through an Indian reseller entity
- 15% cost-based safe harbour to resident entities for providing data center services to a related foreign company who is providing cloud services to any part of the world outside India
Who is Impacted
- Global cloud service providers (AWS, Azure, Google Cloud, etc.)
- Indian data center developers & operators (ARL)
- Indian cloud resellers & IT service entities
- Infrastructure investors & ecosystem partners
Business & Strategic Impact
- India positioned as a preferred global cloud delivery hub
- Boost to investments in hyper scale data centers
- Increased long-term contracts and capacity expansion
- Growth in AI, digital & data-driven services
Tax & Compliance Implications
- Zero / minimal tax on eligible global cloud revenues
- Reduced transfer pricing litigation due to safe harbour
- Need to re-evaluate permanent establishment exposure
- Higher importance of contractual & documentation hygiene
What Taxpayers Should Do – Way Forward
- Review operating & reseller structures
- Align transfer pricing to safe harbour norms
- Revisit pricing, contracts and tax positions as exemption is only for specified data center owned by Indian company where data center is set up under an approved scheme and is notified by Central Govt. (Ministry of Electronics and IT)
- Track CBDT Notifications and clarifications that would follow for detailed provisions and tax holiday
Conclusion & Advisory Note
- Budget 2026 is a landmark reform for cloud & data center sector
- Offers long-term stability, certainty & scalability
- Early planning critical to fully leverage incentives
- Professional evaluation recommended for implementation
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