India’s Union Budget 2026–27 has introduced a sweeping 20-year tax holiday designed to significantly expand the country’s data centre ecosystem and attract large global technology players to invest in digital infrastructure, government and industry sources said. The incentive, announced by Finance Minister Nirmala Sitharaman on February 1, offers long-term tax certainty for companies that use India-based data centres to provide cloud services to customers around the world.

Under the Budget proposal, foreign and domestic investors are eligible for a tax exemption on income from global services delivered through Indian data centres until March 31, 2047. This move allays longstanding concerns that revenue generated by foreign cloud providers could be taxed in India, thereby strengthening the business case for large-scale cloud and AI infrastructure projects in the country.

The measure ensures a level playing field by applying the same tax treatment whether a foreign company sets up its own data centre facility in India or procures services from an Indian operator — a critical clarification for investors. For related entities operating data centres on behalf of foreign parents, a safe harbour provision of 15 per cent on operating costs aims to streamline tax compliance and minimise transfer pricing disputes.

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Government officials emphasise that the tax break is part of a broader strategy to position India as a global digital and AI infrastructure hub. Despite hosting roughly 20 per cent of global data traffic demand, India currently accounts for a relatively small share of global data-centre capacity, a mismatch the Budget seeks to correct by boosting long-term investment incentives.

Industry players and analysts expect the policy to accelerate investment from hyperscale cloud providers like Google, Microsoft and Amazon, which are already expanding operations in India, as well as from technology firms targeting the fast-growing cloud and artificial intelligence markets. The tax certainty offered until 2047 provides a rare multi-decade horizon that matches the long asset life of data centre infrastructure.

In addition to attracting foreign capital, the Budget’s tax break is likely to stimulate growth among Indian data centre operators — including major domestic players such as Nxtra Data, CtrlS Datacenters and Yotta Infrastructure — by integrating them into global cloud supply chains and reinforcing India’s digital ecosystem over the long term.

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