The Centre on Sunday laid out a proposal for global cloud service providers such as Microsoft, Google and Amazon to use more of Indian data centres, promising zero tax on global cloud services provided by them through an Indian entity and from an Indian data centre, Union finance minister Nirmala Sitharaman said at her Budget speech in Parliament.
“Attracting global business and investment, recognising the need to enable critical infrastructure and boost investment in data centres, I propose to provide tax holiday until 2047 to any foreign company that provides cloud services to customers globally, by using data centre services from India,” Sitharaman said.
The finance minister’s ninth consecutive budget, however, did not make any sweeping announcement or outlay on artificial intelligence (AI), like last year’s announcements on the India AI Mission. On Thursday, the FY26 Economic Survey flagged that India will take a slower, measured approach to investing in AI — instead of focusing on “scale.”
The Centre’s FY26 budget receipts said that the government spent ₹800 crore in this fiscal under the India AI Mission. For FY27, the finance ministry set aside ₹1,000 crore for investments under the Mission, which was notified in March 2024 with a net outlay of ₹10,372 crore.
In simpler words, cloud providers will need to utilise Indian data centres, and offer their cloud platforms through Indian data centres, in order to win the tax benefits.
Adding the caveats, Sitharaman said, “It will however need to provide services to Indian customers through an Indian reseller entity. I also propose to provide a safe harbour of 15% on cost in case the company providing data centre services from India is a related entity.”
Industry stakeholders welcomed the move, flagging it as a way for India’s data centre industry to monetise on-ground facilities, and have stronger ground for rapid expansion.
“The Budget combines long-term tax incentives for cloud and data centre investments with a broader push for digital infrastructure and innovation. It recognises that high-quality computing capacity is now crucial to India’s growth, just like roads and power. As a homegrown, AI-ready data centre platform, we see these measures as a positive sign for sustained, cost-effective capacity creation,” said Raju Vegesna, chairman and managing director of IPO-bound data centre operator, Sify Technologies.
Not all analysts found the announcement instantly positive. In an investor note following the Budget, analysts Venugopal Garre and Nikhil Arela at brokerage firm Bernstein said, “While (the data centre tax holiday) sounds great to hear, the eventual impact may be low given multiple complexities. First, it may not be followed for latency-sensitive use cases like interactive apps or AI inference and could only be used in training use cases.”
“The second arises out of the US CLOUD Act that could prevent sensitive sectors from using data centres based out of India. The government’s intent is much clearer though: boosting exports while ensuring India does not miss the AI bus. This again circles back to the Economic Survey, which stated that frontier models might be too complicated for India with multiple constraints (capital, resources, chips). The government seems to be building a strategy centered at cloud and data centre services to benefit from the AI wave,” the note added.
Puneet Chandok, president of Microsoft India and South Asia, added that the move “will accelerate the growth of sovereign-ready cloud and AI capacity, strengthening the backbone of India’s economic resilience and global competitiveness. Recognising AI and cloud infrastructure as strategic national assets reflects clear prioritisation for technology-led growth.”
India has, of late, seen sweeping investments in data centres over the past six months. US-based Big Tech firms, including Google and Microsoft, as well as Indian conglomerates such as Tata group, Reliance Industries, Adani group and Greenko Group have all ventured into manufacturing large-scale data centres in India, with cumulative investment announcements crossing $75 billion in 2025.
These outlays, to be sure, are multi-year investments, most of which are planned for five years between 2025 and 2030.
Huzefa Tavawalla, partner and head of digital disruption at law firm Cyril Amarchand and Mangaldas, added that the move will “significantly boost foreign direct investments and accelerate large-scale infrastructure development.”
“The initiative is also aligned with the National Data Centre Policy 2025, reinforcing India’s ambition to emerge as a global leader in data centre capabilities. However, there seems to be a condition to provide services to Indian customers via an Indian reseller entity. The intent could be to have a level playing field for domestic service providers, but the key will be as to how the actual text of the Income Tax Act will be read in relation to the said relaxations,” he added.
On Friday, Union IT minister Ashwini Vaishnaw told reporters in New Delhi that the Centre expects investments in AI infrastructure, which primarily includes data centres, to possibly double in February itself — a month when India is hosting the fourth global AI Summit.
As part of tax restructuring to attract global investments in India’s technology ecosystem, Sitharaman also said that the Centre may reduce the tax liability of storing electronics components in India, for the tech manufacturing ecosystem.
“To harness the efficiency of just-in-time logistics for electronics manufacturing, I propose to provide safe harbour to non-residents for components warehousing in a bonded warehouse, at a profit margin of 2% of the invoice value. The resultant tax of about 0.7% will be much lower than in competing jurisdictions,” she added.
Curated by Shiv Shakti Mishra
