Data Centre Tax Incentives Win Support, industry Seeks Clarity on Rollout

The Union Finance Minister Nirmala Sitharaman on Feb 1, 2026, proposed to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India.

It simply means that global cloud service providers like Amazon Web Services, Microsoft Azure, Google Cloud can set up data centres in India with zero tax till 2047 and provide services to any country in the world.

The announcement comes at a time when major cloud playerrs have committed significant investments in Indian data centre infrastructure. In December 2025, global technology giants Microsoft and Amazon together pledged more than $50 billion towards expanding cloud and AI infrastructure in India within a 24-hour span.

According to media reports Amazon Web Services has announced plans to invest $12.7 billion in India by 2030, including about $8.3 billion in cloud infrastructure in Mumbai. Microsoft has also committed around $17.5 billion over four years from 2026 to 2029 to scale up its cloud and AI operations in India. Further, Google has also announced plans to invest about $6 billion in a data centre campus in Visakhapatnam, Andhra Pradesh, according to publicly stated investment plans.

But the proposed policy said that if the service has to be offered to Indian customers from the set-up data centre in India, they will have to do it through a Indian reseller entity. Through entities like, an Indian-registered company of the same cloud company or other partner companies.

The minister also further proposed to provide a safe harbour of 15% on cost in case the company providing data centre services from India is a related entity. This provision applies when a data centre company in India provides services to another company within the same corporate group, known as a related entity.

For example, Amazon Web Services India Pvt Ltd. may operate data centres in India and supply infrastructure services to its parent company, AWS in the U.S.

In simple terms, this means the Indian data centre company can add a 15% profit on its costs when billing its own group company abroad, and the tax department will accept this without questioning it. The idea is to avoid tax disputes and give companies clarity on how much they can charge, making it easier and safer for big cloud and technology firms to set up and expand data centres in India.

Industry and Tax Experts

According to Kumarmanglam Vijay and Lalit Kumar, partners at JSA Advocates & Solicitors, the introduction of a tax holiday for foreign cloud service providers until 2047, paired with a 15% safe harbour margin, represents a massive boost for India's data center infrastructure. They noted that these measures will not only drive significant investment but also provide much-needed tax certainty while reducing costly transfer pricing disputes. While Soumitra Majumdar, partner at the same firm stressed the need to simplify regulations, recognise data centres as infrastructure, and improve land acquisition and municipal approvals to fully realise their potential.

Amit Rana, Partner, Price Waterhouse & Co LLP, said the long-term tax certainty would allow cloud companies to plan large capital expenditure and help India emerge as a global data hub. Abhinav Johri, Partner – Technology Consulting, EY India, called the policy a “strategic declaration” that positions India as a digital backbone for the world, strengthening its cloud and AI ecosystem.

Some industry voices took a more neutral, execution-focused view. Umesh Shah, Director, New Age Technologies, Orient Technologies Limited, said the proposals would reduce uncertainty and ease compliance but noted that success would depend on how smoothly companies can scale operations under the new framework. Varun Babbar, Vice President, Qlik, added that infrastructure alone is not enough and that strong data governance and management frameworks will be essential as global workloads and AI usage grow.

A more nuanced view came from Piyush Prakashchandra Somani, Chairman of ESDS, who said the tax holiday is primarily aimed at attracting foreign hyperscalers and does not directly benefit domestic cloud providers that have already invested in Indian data centres. While he said that the strategy could help raise infrastructure standards and create jobs, he added that policymakers should also look at ways to support India’s homegrown cloud companies so they can compete on a more level playing field.

The budget proposals on data centres and cloud infrastructure drew largely positive responses from tax and technology experts, who said the measures would boost foreign investment and provide regulatory clarity. However, some industry voices called for better implementation support and policies to help domestic cloud providers compete with global players.