India’s New Cloud Gambit: Budget 2026 Offers Tax‑Free Horizon Till 2047 For Global Providers Using Indian Data Centres [Read Finance Bill 2026]

The Union Budget for the Financial Year2026-27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today on Sunday, 1 February 2026.

In a landmark end from the existing tax regime, she has proposed a statutory income‑tax holiday till 2047 for foreign cloud service providers that deliver global cloud services using data centres located in India and route services to Indian customers through an Indian reseller entity, effectively weaponising India’s tax law into a long‑term incentive instrument to attract digital infrastructure, capital and jobs.​

Under the current situation, foreign cloud players depending on Indian data‑centre infrastructure face the risk of a change of their local presence or server arrangements could be characterised as a “permanent establishment”, projecting a part of their global cloud profits to Indian corporate tax and triggering complex profit‑attribution and transfer‑pricing disputes.

The new proposal rewrites the old logic for qualifying structures: so long as the cloud company uses India‑based data centres, serves Indian clients through an Indian reseller and complies with detailed conditions yet to be notified, its eligible cloud income can enjoy a tax‑free “runway” up to 2047, with an additional 15 per cent safe‑harbour margin on cost for related‑party data‑centre services to give transfer‑pricing certainty.​

In a similar manner, this marks a shift from a risk‑based, enforcement‑driven posture to an incentive‑based, facilitative one: instead of litigating whether servers or contracts create taxable presence, India is openly inviting hyperscalers and SaaS majors to anchor their AI‑ and cloud‑heavy infrastructure on Indian soil in exchange for long term tax relief.

The government’s stated goals are to position India as a global cloud and data‑centre hub, close the gap between India’s roughly 20 per cent share of global data generation and its much smaller share of global data‑centre capacity, and support the broader target of securing about 10 per cent of the global services market by 2047.​

Compared with the pre‑Budget status position, where foreign cloud firms worried about “double taxation”, unclear profit attribution and fragmented compliance, the new regime promises predictable zero‑tax treatment on qualifying cloud profits, while still ensuring that Indian resellers, employees, contractors and suppliers are fully within the domestic tax net.

At the same time, it creates fresh policy challenges: the revenue forgone on highly profitable foreign operators, potential competitive disadvantages for Indian‑owned cloud and data‑centre providers that remain under normal corporate‑tax rules, and heightened demands on regulators to design clear definitions, anti‑abuse tests, certification and audit mechanisms so that only genuinely substantive investments, not shell structures, benefit from this unprecedented 21‑year tax holiday.

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