Foreign companies providing cloud services globally can avail the proposed 20 year tax holiday till 2047 under the Union Budget 2026‑27 if they use MeitY‑notified data centres located in India, without facing any risk of their global income being taxed in India, Finance Ministry sources clarified.
The clarification addresses concerns among global technology firms about potential tax exposure arising solely from the use of Indian cloud infrastructure.
Budget Proposal and Policy Intent
Finance Minister Nirmala Sitharaman announced the long‑term tax holiday in the 2026‑27 Budget to boost investment in India’s data centre ecosystem and position India as a global backend hub for cloud services. The proposal is designed to offer predictability to foreign cloud providers while ensuring that domestic economic activity continues to be taxed.
Clear Assurance on Global Income
According to Finance Ministry sources, foreign cloud service providers using Indian data centres will not be treated as having their global income taxable in India merely because of that usage. This provides comfort on permanent establishment and profit attribution concerns, which often influence infrastructure location decisions.
Eligibility Conditions for the Tax Holiday
A foreign cloud service provider must satisfy four essential conditions to qualify:
- The entity must be a notified foreign company under the Companies Act, meaning it is incorporated outside India, has a place of business in India, and is set up with foreign capital.
- The data centre providing services must be an Indian company.
- The data centre must be notified by the Ministry of Electronics and Information Technology (MeitY).
- Services provided to Indian customers must be routed through an Indian reseller entity, which must also be an Indian company.
These conditions ensure that the incentive is limited to approved infrastructure and structured delivery models.
Domestic Activity Remains Taxable
The Finance Ministry clarified that the proposal does not exempt income arising from economic activity in India. Income earned by:
- Indian data centre companies for providing services to foreign cloud entities, and
- Indian reseller entities from supplying services to Indian customers
will continue to be taxed in India like any other domestic business income.
Safe Harbour and Level Playing Field
Where the Indian data centre is a related entity of the foreign cloud provider, such as a cost‑plus captive centre, a safe harbour margin of 15 percent will apply. The government emphasised that the tax treatment is the same whether the data centre is Indian‑owned or a subsidiary of the global entity, ensuring a level playing field.
Impact on Indian Data Centres
The clarification allows Indian data centres to confidently offer services to global cloud companies without those companies factoring in unintended Indian tax exposure. This is expected to strengthen India’s competitiveness in hosting global cloud infrastructure.
Source: Adapted from Business Standard