FM Sitharaman announces tax holiday for data centres in India till 2047
Finance Minister Nirmala Sitharaman announced a tax holiday till 2047 (Tax Year 2026-27 to 2046-47) for eligible foreign cloud service providers that operate globally using India-based data centre infrastructure.
Foreign companies providing cloud services internationally, while utilising data centres owned and operated by Indian developers, will be exempt from tax on such income for 21 years — aligned with India's centenary year Viksit Bharat vision.
Services provided to Indian customers must be routed through an Indian reseller entity, keeping domestic transactions within the Indian tax net.
A 15% safe harbour provision on costs is also introduced for data centre services provided by related entities, reducing transfer pricing disputes.
Experts estimate the measure could unlock $70-100 billion in data centre investments, establishing India as a global hub for cloud and AI infrastructure.
Data Centre Industry: Strategic Importance and India's Position
A data centre is a physical facility housing computing infrastructure (servers, storage, networking equipment) that stores, processes, and transmits digital data. Hyperscale data centres — built by global cloud giants like Amazon AWS, Microsoft Azure, and Google Cloud — are the infrastructure layer underlying AI, cloud computing, and digital services.
Key Details
- India's data centre capacity: ~900 MW (2024), projected to reach 2,000+ MW by 2027 with the tax holiday as catalyst.
- Global hyperscalers have announced large India investments: Microsoft ($3 billion, 2024), Google ($2 billion), Amazon AWS ($12.7 billion over 5 years) — the tax certainty accelerates these.
- India's advantage: Large English-speaking tech talent pool, improving power infrastructure, competitive land costs, and now long-term tax certainty.
- Data localisation context: India's Digital Personal Data Protection Act, 2023 allows data to be stored abroad by default (unlike earlier RBI data localisation mandates for payment data); the tax holiday incentivises onshoring.
- NASSCOM estimates India needs to be a top-3 global data centre market by 2030 to capture AI infrastructure value chains.
The tax holiday directly addresses the primary barrier to India attracting hyperscale data centre investment — the absence of a stable, long-term tax policy framework. Twenty-one years of tax certainty rivals incentives offered by Singapore and UAE (India's main competitors for regional data centre hubs).
Tax Holiday Framework: India's Investment Incentive Architecture
Tax holidays are a common fiscal tool to attract investment in priority sectors by providing time-bound exemptions from corporate income tax on eligible income.
Key Details
- India's existing tax holiday framework (under Income Tax Act, 1961, now being replaced by the Income Tax Act, 2025 effective April 2026): Section 10AA (SEZ units — 15-year graduated exemption), Section 80-IC (specific hill states), Section 80-IA/80-IB (infrastructure and industrial undertakings).
- The data centre tax holiday is structured similarly to Section 80-IBA and Section 10AA — a fixed period exemption on profits from eligible activities.
- Safe harbour on costs (15%): Under transfer pricing rules, when a foreign company buys data centre services from a related Indian entity, the arm's length price is deemed as cost + 15% markup — eliminating the need for complex transfer pricing documentation and litigation.
- Viksit Bharat 2047: The 2047 end date is deliberately chosen — India's 100th Independence anniversary and the anchor of the government's long-term development vision. Aligning the tax holiday with this vision creates regulatory predictability for 21-year investment horizons.
- Budget 2026-27 also raised the safe harbour eligibility threshold for IT services from ₹300 crore to ₹2,000 crore — part of a broader effort to provide tax certainty to the digital economy.
The data centre tax holiday is not a one-off measure — it fits into a deliberate strategy of using tax certainty (rather than tax rate competition) to attract digital infrastructure investment, complementing India's existing SEZ and IT incentive frameworks.
Make in India and Digital Infrastructure: From Manufacturing to Infrastructure Hosting
Make in India (launched 2014) originally focused on manufacturing; it has evolved to encompass digital infrastructure — positioning India not just as a manufacturing hub but as a global back-end for data and AI workloads.
Key Details
- The data centre tax holiday is part of India's strategy to position itself in the "Global Capability Centre" (GCC) ecosystem — centres where multinational companies locate their engineering, analytics, and AI operations.
- India already hosts 1,700+ GCCs employing ~1.9 million workers (2025); the data centre tax holiday aims to anchor the physical infrastructure supporting these operations.
- Production Linked Incentive (PLI) for IT Hardware: Incentivises manufacturing of servers and storage in India — complementing the data centre hosting incentive.
- IndiaAI Mission (Budget 2024-25: ₹10,372 crore): Builds sovereign AI compute infrastructure, data sets, and AI governance — the demand side that data centres will serve.
- Digital India Infrastructure: BharatNet (rural broadband), National Optical Fibre Network, and 5G rollout create the connectivity backbone for distributed data centre architectures.
The tax holiday signals India's ambition to be an infrastructure provider to global digital companies, not just a consumer of foreign cloud services — a strategic repositioning with significant implications for the Balance of Payments (digital services exports).
- Tax holiday period: Tax Year 2026-27 to Tax Year 2046-47 (21 years, until 2047)
- Beneficiaries: Foreign cloud service providers using India-based data centre infrastructure
- Condition: Services to Indian customers must go through an Indian reseller entity
- Transfer pricing safe harbour: 15% on cost for data centre services between related entities
- IT safe harbour threshold: Raised from ₹300 crore to ₹2,000 crore (Budget 2026)
- Potential investment unlocked: $70-100 billion (expert estimates)
- India's current data centre capacity: ~900 MW (2024); target 2,000+ MW by 2027
- Hyperscaler commitments: Microsoft $3 billion, Google $2 billion, AWS $12.7 billion (5-year)
- IndiaAI Mission: ₹10,372 crore (Budget 2024-25)
- GCCs in India: 1,700+; employing ~1.9 million workers (2025)
- Viksit Bharat 2047: India's 100th Independence anniversary development vision
- Income Tax Act, 2025: Replaces Income Tax Act, 1961 from April 1, 2026