AI Booster: Budget Offers Tax Holiday For Global Cloud Firms Using Indian Data Centres

The Union Budget on Sunday proposed a tax holiday till 2047 for foreign companies that provide cloud services to customers globally using data centres located in India, signalling the government’s push to make the country a major hub for AI and digital infrastructure.

The big push on data centres comes at a time when India is gearing up to take the centrestage in global discourse on Artificial Intelligence. It is expected to position India not just as a consumer of global cloud and AI services, but as a thriving base for the world's digital backbone.

By linking tax benefits to serving global customers from India, the policy seeks to turn the country into an export hub for cloud computing.

Presenting the Union Budget 2026–27, Finance Minister Nirmala Sitharaman said: “Recognising the need to enable 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 centre services from India.” It will, however, need to provide services to Indian customers through an Indian reseller entity.

“I also propose to provide a safe harbour of 15% on cost in case the company providing data centre services from India is a related entity,” the FM said.

Put simply, data centres are secure facilities filled with powerful computers and servers that store, process and transmit digital data behind services ranging from emails and banking all the way to streaming and cloud platforms.

The data centres, which resemble fortified bases, run on specialised infrastructure, from uninterrupted power supply to advanced cooling and round-the-clock monitoring (even one minute of downtime can affect millions of users).

With AI, cloud computing and digital payments growing, data centres are becoming as critical as roads and power plants, forming the backbone of India’s digital economy.

India is eyeing a leading role in global AI conversations with New Delhi all set to host the India AI Impact Summit, the first-ever in the Global South.

The mega conference scheduled from February 16–20, 2026, at Bharat Mandapam, New Delhi, will mark the biggest congregation on AI in the world till date, bringing together 15 global leaders and Heads of State/Government, over 40 Ministers, 100s of leading CEOs and CXOs, and eminent academics from all over the world.

IT Minister Ashwini Vaishnaw, earlier this week, noted that investments worth nearly $70 billion are already flowing into the AI infrastructure layer, with the potential to double by the conclusion of the Summit.

Last year, big tech companies Microsoft and Google grabbed headlines as they collectively pledged billions of dollars in fresh capital to build out gigawatt-scale data centres and sovereign AI infrastructure in India.

Sindhu Gangadharan, SAP Labs India and Chairperson, Nasscom, said the Budget strengthens the policy backbone required for India to operate as a global technology and AI execution hub.

“The focus on cloud infrastructure and long-term clarity for cloud services directly addresses a core constraint in scaling enterprise platforms, the ability to run regulated, data-intensive workloads with confidence and continuity,” Gangadharan said.

She added that for GCCs, this creates the conditions to move beyond delivery into ownership, where India increasingly designs, builds, and runs core platforms and mission-critical systems for global enterprises.

S Anjani Kumar, Partner, Deloitte India, noted the Budget treats AI as a horizontal enabler for the whole economy. It explicitly positions it as a force multiplier for better governance alongside structural reforms and financial-sector deepening.

The tax holiday signals a bet on India as a long-term compute hub, which is the infrastructure backbone for all of this AI adoption, Kumar added.

Piyush Prakashchandra Somani, Promoter, Managing Director and Chairman, ESDS, observed that the tax holiday for cloud services with local data centres is a timely and strategic move that reinforces India’s commitment to data sovereignty and a resilient digital economy.

“By directly incentivising domestic data centre operations, the government is not only accelerating investments in India-based cloud infrastructure but also creating a stronger foundation of trust, security, and compliance for enterprises.

“This policy will encourage cloud providers to scale locally, reduce dependence on offshore data storage, and position India as a preferred global hub for secure, compliant, and future-ready cloud services,” Somani added.