In one of the most striking announcements of the Union Budget 2026-27, the government has proposed a sweeping tax holiday for foreign companies providing cloud services to global customers using data centres located in India. The exemption — valid until 2047 — marks an unprecedented effort to attract large-scale digital infrastructure investment and position India as a long-term player in the global cloud ecosystem.

The Finance Minister announced, "I propose providing a tax holiday until 2047 to any foreign company that offers cloud services to customers globally using data centres located in India. However, it will need to provide services to Indian customers through an Indian reseller entity."

Structure Of The Incentive

The tax holiday applies exclusively to foreign cloud service providers catering to customers outside India, while leveraging data centre operations within the country. To ensure appropriate taxation on domestic transactions, the government has mandated that services provided to Indian customers must be routed through an Indian reseller entity, which will continue to be taxed under India's standard regime.

As part of the reform package, the Budget also proposes a 15% safe-harbour margin for Indian resident entities that provide data centre services to their related foreign companies. This is intended to simplify compliance, reduce tax disputes, and encourage global cloud players to build deeper operational ties within India.

The government hopes the long-term incentive will accelerate investment in hyperscale data centres, strengthen India's digital backbone, and spur growth in interconnected sectors such as artificial intelligence, semiconductor design, OTT platforms, and enterprise cloud solutions. 

Manufacturing Push

The Finance Minister unveiled a renewed push to strengthen India's high‑tech manufacturing ecosystem, announcing the rollout of India Semiconductor Mission (ISM) 2.0 along with a substantial expansion of support for the electronics sector. The outlay for the Electronics Components Manufacturing Scheme has been increased to Rs 40,000 crore, nearly doubling the earlier allocation to capitalise on rising investment interest in the industry.

The Budget also introduced a 2% profit‑margin safe harbour for companies engaged in electronics manufacturing, aimed at giving firms predictable tax treatment and boosting the competitiveness of domestic production.

Presenting her ninth Budget, Finance Minister Nirmala Sitharaman placed artificial intelligence, semiconductor capability, and digital infrastructure at the centre of India's long‑term economic vision.

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