In a significant move aimed at strengthening India’s digital infrastructure and attracting large-scale foreign investment, Union Finance Minister Nirmala Sitharaman, in her Union Budget 2026 speech, announced a long-term tax holiday and transfer pricing relief for foreign companies providing cloud and data centre services from India.
The measures are designed to position India as a preferred global destination for data centres, while simultaneously ensuring the development of domestic digital ecosystems and local market participation.
Tax Holiday Till 2047 for Global Cloud Service Providers
Recognising the growing importance of data centres as critical infrastructure for the digital economy, the Finance Minister proposed a tax holiday extending up to the year 2047 for foreign companies that provide cloud services to customers worldwide using data centre infrastructure located in India.
This incentive is aimed at encouraging global cloud service providers to establish and expand their data centre operations within the country, leveraging India’s growing digital demand, skilled workforce, and improving power and connectivity infrastructure.
The extended tax holiday signals the government’s intent to offer long-term policy certainty to investors, particularly in capital-intensive sectors such as data centres, which require significant upfront investment and long gestation periods.
Mandatory Indian Market Access Through Domestic Resellers
While foreign companies will be allowed to serve global customers directly from India, the Finance Minister clarified that services to Indian customers must be routed through an Indian reseller entity.
This condition ensures that domestic entities remain integrated into the value chain, promotes local entrepreneurship, and enables better regulatory oversight. It also aligns with the government’s broader objective of strengthening India’s digital services ecosystem while safeguarding domestic market interests.
Safe Harbour Provision for Related Party Data Centre Services
Addressing concerns related to transfer pricing and compliance burden, the Budget also proposed a safe harbour margin of 15 percent on cost for cases where data centre services provided from India are rendered by a related entity.
Under this provision, the pricing of such services will be deemed to be at arm’s length if the 15 percent cost-plus margin is applied, reducing disputes and litigation related to transfer pricing assessments.
This move is expected to significantly enhance ease of doing business for multinational cloud and technology companies operating integrated global delivery models through Indian data centres.
Boost to Ease of Doing Business and Investment Climate
Together, the tax holiday and safe harbour provisions are expected to reduce tax uncertainty, improve project viability, and accelerate investment decisions in the data centre sector. Industry experts believe these measures could trigger a new wave of investments in hyperscale and edge data centres across the country.
The announcement also aligns with India’s broader digital ambitions, including data localisation, cloud adoption, artificial intelligence, and expansion of digital public infrastructure.
Strategic Push for Digital Sovereignty
By incentivising global cloud providers to anchor their infrastructure in India, the government aims to enhance data security, reduce dependency on overseas infrastructure, and strengthen India’s position in the global digital economy.
The Budget 2026 proposals underline the government’s strategic focus on transforming India into a trusted global hub for cloud computing and data centre services, while ensuring domestic participation and regulatory balance.
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