Budget: Govt Proposes Tax Holiday till 2047 to Boost Data Centre Investments

Announcing incentives for data centre-led cloud services, Finance Minister Nirmala Sitharaman proposed a tax holiday till 2047 to any foreign company providing cloud services globally using data centre services from India.

While presenting the Budget FY27, she said that the proposal was aimed at attracting global business and investment, and recognising the need to enable critical infrastructure. Such companies, however, will be required to provide services to Indian customers through an Indian reseller entity, she added.

For IT services companies seeking advance pricing certainty, the finance minister said the government would fast-track the unilateral Advance Pricing Agreement (APA) process for the sector to conclude within two years, extendable by six months. On a taxpayer’s request, the facility of modified returns will also be extended to associated entities entering into an APA.

She also proposed a safe harbour of 15% on cost in cases where the company providing data centre services from India is a related entity, aimed at harnessing operational efficiencies.

Sitharaman, in her Budget speech, announced a series of tax measures to ease compliance for India’s information technology sector and incentivising investments in data centres.

As part of the proposals, she further announced a common safe harbour margin of 15.5 % to all IT services. Further, the threshold for availing safe harbour benefits for IT services companies will be enhanced substantially from ₹ 300 crore to ₹ 2,000 crore, she announced.

Highlighting India’s position as a global leader in software development services, Sitharaman said that services such as IT-enabled services, knowledge process outsourcing and contract research and development in software are closely interconnected. “All these services are proposed to be clubbed under a single category of Information Technology Services,” she added.

To simplify compliance, FM said that safe harbour applications for IT services would be approved through an “automated, rule-driven process without any need for a tax officer to examine and accept the application.” Once opted for, the safe harbour can be continued for a period of five years at the taxpayer’s choice.