Union Finance Minister Nirmala Sitharaman on Sunday announced a long-term tax holiday for foreign cloud service providers, signalling a major policy push to strengthen India’s digital infrastructure and data centre ecosystem.
Presenting the Union Budget for FY 2026–27 in Parliament, Sitharaman said that foreign companies providing cloud services to the world through data centres set up in India will be eligible for a tax holiday until 2047.
“I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India,” the finance minister said in her Budget speech.
What is a tax holiday?
A tax holiday is a government policy whereby companies are exempted from paying specific taxes for a fixed period. The government usually offers tax holidays to encourage investments in specific sectors, reduce the cost of setting up projects, and encourage global companies to enter the country.
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In this case, the tax holiday is intended to facilitate large-scale investments in data centres, which are essential for cloud computing, AI, and digital services.
Who can avail the tax holiday?
The incentive will be available to foreign cloud service providers only if certain conditions are met. As Sitharaman said, the applicants need to provide their Indian-based services through an Indian reseller entity.
This requirement, she noted, is intended to ensure domestic participation alongside global operations while enabling India to emerge as a key base for global cloud services.
IT services brought under a single category
The Budget also marks a shift in the taxation of IT services. Software development services, IT-enabled services, knowledge process outsourcing, and contract research and development services will all fall under a single category: “Information Technology Services.”
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The finance minister pointed out that India is already recognised as a global leader in these sectors, and this move will help bring greater consistency to the taxation of these services.
Safe harbour and compliance measures
To make it easier for taxpayers, the Budget proposes that a uniform safe harbour margin of 15.5% should apply to all IT services. The turnover limit for availing safe harbour provisions has been increased from ₹300 crore to ₹2,000 crore.
Further, safe harbour approvals for IT services will be processed through an automated, rule-based system. This means that there will be less need for detailed examination by tax officials.
Sitharaman further added that the time taken for the processing of Advanced Pricing Agreements will be cut down to two years, with an extension of six months. Additionally, the modified return facility will now be available for related groups entering into an Advanced Pricing Agreement (APA).
