By Ria Jain
In the Union Budget 2026-27, a landmark proposal to put India in the center of the global digital era was presented. Finance Minister Nirmala Sitharaman offered a tax holiday for 21 years, i.e, until 2047 to foreign cloud storage providers. With this, the government will provide a red carpet to companies like Google, Amazon Web Services and Microsoft, to hyperscale themselves in the country.
The focus point of this proposal is the provision of exemption of global income to companies that would use data centers based in India for their cloud services. This would be a historical decision as from years the global giants have been cautious of expanding in India due to the tax complications as the risk of subsequent risk of having ‘taxable presence’. According to budget 2026, the government will decouple physical data center operations from cloud services and provide longevity much needed for capital intensive infrastructure development.
It is a well timed action, with the ongoing war to dominate the Artificial Intelligence sector, with demands increasing for computing powers around the globe. Even with 20% contribution of global data generation, India only houses 3% of data centers which might change with this policy. With the incentives provided on data center development, startups and smaller firms will be able to invest more in AI models, shifting India from consumer of AI to an innovator.
This proposal, although comes with the condition that foreign companies must provide their services to local consumers through a local reseller so that the domestic revenue stays under the tax net. Further, a 15% ‘safe harbour’ margin on cost has also been added to related party transactions, thus reducing the risk of disputes in transfer pricing.
Some firms like Nasscom have applauded this move signaling long term investments, there are ongoing debates on the thus following environment tolls. With expansion in data centers, India’s water and power resources will go for a toss, making green AI and sustainable energy integrations necessary, if India wants to achieve the goal by 2047.