The government on Wednesday clarified that foreign cloud service providers will receive the same tax treatment whether they use Indian-owned data centres or subsidiaries of global companies. The move will ensure a level playing field under the data centre tax holiday announced in Budget 2026, according to people familiar with the matter.
Sources at the Finance Ministry said that the clarification spells out the scope, eligibility conditions, and tax treatment for data centre-linked cloud services. A lack of tax certainty has often led to disputes, prompting global cloud firms to route investments through other jurisdictions, the sources said.
The development came after the Finance Minister Nirmala Sitharaman, in the Budget speech on Sunday, announced a tax holiday for foreign companies that provide global cloud services using data centres located in India. The measure grants an income tax exemption until 2047 on services provided to customers outside India, provided the cloud services are delivered using Indian data centre infrastructure.
The exemption is subject to four conditions, according to the sources. The foreign cloud service provider must be notified by the government. The data centre services must be sourced from an Indian company. The data centre must be notified by the Ministry of Electronics and Information Technology. Services to Indian users must be routed through an Indian reseller entity.
The sources said the framework ensures there is no risk of global income being taxed in India for eligible foreign cloud companies. Income linked to domestic economic activity will remain taxable. This includes revenue earned by resident data centres for services provided to foreign cloud firms and income from resale of cloud services to Indian customers by Indian reseller entities.
Where the Indian data centre is a related entity of the foreign cloud provider and operates on a cost-plus basis, the Budget provides a 15% safe harbour margin. The measure aims to address transfer pricing issues while protecting the domestic tax base, the sources said.
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