India has said that foreign companies using data centres located in the country to deliver services to global clients will not face any tax liability for doing so for more than 20 years, a move aimed at easing concerns over potential future taxation of the sector.
As per Reuters, scores of data centres have been built across India in recent years. Lawyers said foreign firms had been worried New Delhi could eventually tax their global income simply because they used data centres based in the country.
Those concerns were addressed by Finance Minister Nirmala Sitharaman in her 2026–27 budget speech.
She announced that India will “provide tax holiday till 2047 to any foreign companies that provide cloud services to their customers globally, by using data centre services from India.”
According to Reuters, Vaibhav Gupta, partner at tax firm Dhruva Advisors, said, “This announcement helps in bringing clarity to foreign companies and lends stability in (their) tax position in India till 2047.”
He added that foreign firms would no longer need to worry about potential taxes on their global income solely because they use data centres in India.
Global technology companies have significantly expanded their data centre presence in the country. Google said in October that it will invest $15 billion in an AI data centre project in Andhra Pradesh, while Microsoft and Amazon have already poured billions of dollars into data centres in India. Indian conglomerates such as Adani Group and Reliance Industries are also investing heavily in the sector.
Amazon, Microsoft and Google did not immediately respond to requests for comment on the government’s tax measure.
“Data centres will be a major strength for India through which we can provide new services to the world,” IT minister Ashwini Vaishnav told reporters earlier.
What is a Tax Holiday?
A tax holiday is a government policy that temporarily reduces or eliminates taxes for certain businesses or activities. It’s essentially a fiscal incentive where a government allows a company to pay little or no tax for a defined period to encourage investment, economic activity, or development in specific sectors.
For businesses, a tax holiday can mean, lower corporate tax or tax exemption on profits for a set number of years. It can mean reduced tax burden on specific types of income or operations. It also means greater cash flow and profitability during the initial phase of investment.
Governments often use tax holidays to attract both domestic and foreign investment, support job creation, stimulate industry growth, and develop strategic sectors in their economies.
Why is India providing this tax holiday to foreign companies using Indian data centres?
In India’s 2026-27 Union Budget, Finance Minister Nirmala Sitharaman announced that foreign companies providing cloud services globally by using data centre services located in India will be eligible for a tax holiday until 2047. The key reasons behind this policy are:
Attract and secure long-term foreign investment
India wants to make itself a more attractive destination for global technology companies such as Google, Microsoft, and Amazon, which have already announced billions of dollars of data centre investments. A prolonged tax holiday reduces future tax uncertainty and increases the appeal of investing in Indian digital infrastructure, reported Reuters.
Position India as a global digital infrastructure hub
As per Economic Times, data centres are critical for cloud computing, artificial intelligence (AI), and digital services. By offering tax incentives, India aims to strengthen its role as a global hub for data storage, cloud services, and next-generation digital technology.
Encourage local development and ecosystem growth
A tax holiday encourages foreign cloud providers to not just serve India, but to host and process data locally. This supports the development of a world-class data centre ecosystem, creates local jobs, and builds up related infrastructure (power, connectivity, cooling, etc.)
Provide tax clarity and stability
Before this measure, foreign companies were concerned that simply using Indian-based data centres might expose them to tax on global income under Indian law. The tax holiday gives these companies long-term certainty that they won’t suddenly face new tax liabilities on global profits for the next two decades, said Reuters.
In brief, a tax holiday is a temporary government tax incentive, and India’s latest budget uses it strategically to boost foreign investment in data centres, build critical digital infrastructure, and make the country competitive in the global cloud and AI ecosystem.
