In today’s world, data has become as critical as roads, power, and ports. From digital payments and online shopping to streaming platforms and banking systems, cloud computing quietly supports the modern economy. Recognising this reality, India has taken a significant yet understated step to strengthen its position in the global digital landscape.
The Union Budget’s decision to offer a long-term tax holiday to foreign cloud service providers signals more than a financial incentive. It reflects India’s broader ambition to emerge as a trusted global hub for data centres and cloud infrastructure, at a time when countries across the world are competing to host the digital backbone of the future.
To prevent confusion and speculation around the announcement, Finance Ministry officials have now clarified how the exemption will work and who will qualify. The resulting framework aims to strike a careful balance—offering certainty and confidence to global companies, while ensuring that India’s domestic tax interests remain protected.
A Long-Term Promise of Stability
The tax exemption will apply for a period of twenty years, beginning in the 2026–27 financial year and running until 2046–47. Such a long horizon is rare in tax policy and sends a strong signal to foreign investors that India is committed to stability and predictability.
The exemption is designed specifically for foreign companies that provide cloud services globally, including services used in India. However, it is not a blanket benefit. Companies must operate within a clearly defined structure that links global cloud operations with Indian data infrastructure in a transparent and regulated manner.
At the heart of the policy is a simple objective: to remove the long-standing fear that foreign cloud companies could be exposed to Indian taxation on their global income merely because they use data centres located in India. This concern has often discouraged major cloud providers from expanding their physical infrastructure footprint in the country.
The Conditions That Define the Framework
To ensure clarity and fairness, the government has laid down four essential conditions that foreign cloud companies must meet to qualify for the tax holiday.
First, the foreign cloud service provider must be officially notified by the government, and the data centre services it uses must come from an Indian company. This anchors the infrastructure within the domestic economy.
Second, the data centre itself must be approved and notified by the Ministry of Electronics and Information Technology (MeitY). This ensures regulatory oversight, compliance with national standards, and alignment with India’s digital policy goals.
Third, any cloud services offered to Indian users must be routed through an Indian reseller entity, which must also be incorporated in India. This condition ensures that customer-facing operations, billing, and service delivery remain within the country.
Finally, the overall structure must clearly distinguish between global cloud income and India-based economic activity, leaving no ambiguity about what is taxable in India and what is not.
Certainty Without Sacrificing Revenue
One of the most important clarifications provided by the Finance Ministry is that foreign cloud companies will not be taxed on their worldwide income simply because they use Indian data centres. This assurance is critical for multinational firms that operate across multiple jurisdictions.
At the same time, the government has been clear that domestic income will continue to be taxed as usual.
Indian data centres providing services to global cloud companies will remain subject to normal corporate taxation. Similarly, Indian reseller entities that sell cloud services to customers within the country will also pay taxes like any other domestic business.
This approach allows India to attract global investment while ensuring that economic activity generated within its borders contributes to public revenue.
Simplifying Compliance for Global Players
For multinational cloud companies that operate Indian data centres as subsidiaries or related entities, the policy introduces a safe harbour margin of 15 per cent under a cost-plus model.
This provision helps reduce uncertainty around transfer pricing, a common area of dispute in cross-border operations. By offering a predictable margin, the government makes compliance simpler and lowers the risk of prolonged tax disputes—an important consideration for long-term investors.
A Level Playing Field for All
Another notable feature of the framework is its ownership-neutral design. Whether an Indian data centre is independently owned or is a subsidiary of a global cloud provider, the tax treatment of the foreign cloud company remains the same.
This ensures a level playing field and encourages both domestic firms and multinational companies to participate in India’s growing data centre ecosystem without structural disadvantages.
What This Means for India’s Digital Ecosystem
With policy clarity now in place, Indian data centres are better positioned to market their services to global cloud providers. The long-term impact of the tax holiday is expected to be wide-ranging.
It is likely to attract fresh foreign investment into large-scale data infrastructure, strengthen India’s role in global cloud supply chains, and generate high-skilled employment in areas such as data management, cybersecurity, and network engineering.
More broadly, the move reinforces confidence in India’s policy environment at a time when global technology firms are increasingly sensitive to regulatory uncertainty.
A Strategic Signal to the World
This tax holiday is not merely a fiscal incentive—it is a strategic statement. By offering long-term certainty while safeguarding domestic taxation, India is signalling that it is ready to host the world’s data on clear, stable, and predictable terms.
As cloud computing becomes the backbone of the global digital economy, decisions about where data is stored and processed will shape future growth. With this move, India has made it clear that it intends to be part of that future—not as a passive participant, but as a trusted global digital hub.