Union Budget 2026 Introduces Major Tax Incentives for Data Centre Development in India
In a significant move to bolster India's digital infrastructure, Finance Minister Nirmala Sitharaman announced substantial tax benefits for data centre investments during the Union Budget 2026 presentation. The government has proposed a tax holiday extending until 2047 for foreign companies that provide cloud services to global customers utilizing cloud infrastructure located within India.
Key Conditions for Tax Benefit Eligibility
While the tax concession represents a major incentive for international technology firms, the Budget outlines specific requirements that must be met to qualify for these benefits. Companies seeking to avail themselves of the tax holiday must not only serve global customers but also provide services to customers within India. This dual requirement ensures that while attracting foreign investment, the domestic market also receives enhanced cloud service capabilities.
Finance Minister Sitharaman emphasized this condition during her Budget speech, stating clearly that "it will, however, need to provide services to Indian customers through an Indian reseller entity." This provision creates opportunities for local businesses to participate in the growing cloud services ecosystem while ensuring compliance with regulatory frameworks.
Strategic Focus on Critical Digital Infrastructure
The announcement was made under the 'Attracting global business and investment' section of the Budget speech, highlighting the government's strategic focus on positioning India as a global hub for data centre operations. Sitharaman specifically mentioned that this measure aims to "enable critical infrastructure and boost investment in data centres," recognizing their importance in the digital economy.
This policy direction comes at a time when India has already witnessed substantial investments from global technology giants including Google, Microsoft, and Amazon in establishing data centre facilities across the country. The extended tax holiday until 2047 provides long-term certainty for potential investors, making India an increasingly attractive destination for data centre development.
Additional Provisions for Related Entities
Beyond the primary tax holiday, the Budget includes additional provisions to facilitate data centre investments. The government has proposed a safe harbor mechanism that allows for a 15 percent margin on costs in cases where the company providing data centre services from India operates as a related entity. This measure addresses transfer pricing concerns and provides clarity for multinational corporations establishing interconnected operations.
The comprehensive approach demonstrated in Budget 2026 signals the government's commitment to creating a favorable environment for data centre investments while ensuring that these developments benefit both the global digital ecosystem and domestic consumers. By combining attractive tax incentives with clear operational requirements, India aims to accelerate its position in the rapidly evolving landscape of cloud services and digital infrastructure.
