Union Budget 2026 Focuses on Digital Infrastructure with Major Tax Incentives
Finance Minister Nirmala Sitharaman presented her ninth Union Budget, placing significant emphasis on economic growth, job creation, and bolstering manufacturing capabilities amid challenging global macroeconomic conditions. The budget introduced a landmark measure to position India as a premier hub for digital infrastructure and provide substantial support to the information technology industry.
Tax Holiday for Foreign Cloud Service Providers
In a strategic move to attract long-term capital and strengthen India's rapidly expanding data center ecosystem, the Union Budget 2026-27 proposes a tax holiday extending until 2047 for foreign companies providing cloud services from Indian data centers. During her budget speech, Sitharaman announced, "To promote India as a global data center hub, any foreign company providing cloud services to customers worldwide using data center services located in India will be eligible for a tax holiday up to 2047."
To qualify for this exemption, these international companies must serve Indian customers through an Indian reseller entity. This condition ensures local business participation while facilitating global operations.
Industry Reactions and Analysis
The budget proposals have been welcomed by IT companies and industry analysts who see them as transformative for India's digital ambitions.
Rajesh Varrier, President of Global Operations & Chairman and Managing Director at Cognizant India, commented, "The Union Budget 2026–27 sends a clear signal that India is doubling down on its role as a global technology and services powerhouse. The recognition of IT services as a unified category, along with enhanced safe-harbour thresholds, brings much-needed certainty and predictability to the industry." He emphasized that these measures allow companies to shift focus from compliance to innovation and long-term value creation.
A spokesperson from Nxtra by Airtel stated, "It is welcoming to see the efforts by the Indian government to boost the country's data center market. These measures will be a game-changer that will accelerate India's digital ambitions and position us as a global hub for AI and cloud innovation."
Amit Rana, Partner at Price Waterhouse & Co LLP, highlighted the financial implications, noting, "Union Budget 2026–27 offers positive proposals for promoting investment in data centers in India. Under the proposals, income of overseas entities from the provision of cloud services using specified Indian data centers will be exempt from Indian income tax until 2047. Indian data centers will also be eligible for a safe harbour of cost plus 15%." He added that these amendments with more than twenty-year validity provide significant certainty to cloud service providers, enabling them to plan substantial capital expenditure in India.
Broader Technological Focus
The budget's emphasis extends beyond cloud services to strengthen India's research, development, and innovation ecosystem, particularly in artificial intelligence, digital platforms, and emerging technologies. This creates a robust foundation for IT services companies to deepen applied research and development efforts.
Anand Mahurkar, CEO of Findability Sciences, pointed out the budget's recognition of agricultural technology's strategic importance, stating, "Today's Budget acknowledges that agtech isn't a niche. It is central to India's strategic priorities of improved farmer incomes and food security. With AI and machine learning embedded in digital agriculture infrastructure, we can anticipate pest outbreaks before they devastate crops and deliver climate-smart advisories."
Political Response and Context
While the budget has received positive feedback from the technology sector, it has faced criticism from some political quarters. West Bengal Chief Minister Mamata Banerjee described the budget as having "nothing for the common man" and labeled it a "Humpty Dumpty" budget, indicating her dissatisfaction with the central government's fiscal policies.
The Union Budget 2026-27 represents a comprehensive approach to enhancing India's digital infrastructure capabilities while addressing broader economic objectives. By providing long-term tax incentives and regulatory clarity, the government aims to attract substantial foreign investment in data centers and cloud services, reinforcing India's position as a global digital partner and contributing to the vision of a developed nation.
