India Announces Tax Holiday to Attract Global Cloud and AI Data Centres
Services sold to Indian customers would continue to be taxed domestically through locally incorporated resellers.
India has unveiled a sweeping set of incentives aimed at turning the country into a global hub for cloud computing and AI infrastructure, led by a proposed tax holiday for export-oriented cloud services.
Finance minister Nirmala Sitharaman announced in Parliament on Sunday that revenues earned from cloud services sold outside India would face zero taxes until 2047, provided those services are operated from data centres located in the country. Services sold to Indian customers would continue to be taxed domestically through locally incorporated resellers.
The annual budget also proposes a 15% cost-plus safe harbour for Indian data-centre operators serving related foreign entities, reducing transfer-pricing disputes and improving investment certainty.
The measures come as global cloud providers race to expand capacity to meet surging AI demand. India has emerged as a key destination, supported by a large engineering workforce and rising cloud adoption.
Google, Microsoft and Amazon have collectively pledged tens of billions of dollars in recent years to expand AI and cloud infrastructure in the country, while domestic players such as Reliance-backed Digital Connexion and the Adani Group are also investing heavily in AI-ready data centres.
Policy experts say the announcements signal that data centres are being treated as strategic infrastructure rather than back-end utilities.
"The Union Budget 2026–27 provides much-needed structural clarity for India’s AI and cloud infrastructure ecosystem," Mr. Sharad Sanghi, Co-founder & CEO of Neysa said, "Equally consequential is the proposal to offer a tax holiday until 2047 for foreign companies providing cloud services to customers outside India using data centre services based in India, along with a 15% safe harbour on cost for related Indian entities delivering those data centre services. These measures directly strengthen India’s attractiveness as a hub for cloud and AI infrastructure and support the shift towards domestically hosted compute."
"Together, these measures will catalyse fresh investment into high‑performance, secure, and scalable infrastructure, the foundation for cloud‑first, AI‑ready, and automation‑driven environments that modern enterprises now depend on," Sumed Marwaha, Managing Director - AHEAD India, said.
However, challenges remain, including high power costs, patchy electricity supply and water scarcity, which could complicate large-scale expansion.
