Union Budget 2026: Tax break aims to clear skies for cloud players

Can a 21-year tax holiday turn India into a data centre powerhouse? That seems to be GOI's hope in offering this incentive to foreign cloud services providers who set up Indian data centres. A Deloitte report had mentioned absence of tax concessions as a disincentive for major players.India ranks 8th (with 271 centres) among countries with most data centres. But it has relatively cheap land and labour, 'younger' power grids, abundant tech manpower, and generates a fifth of the world's data. Google and Amazon have already announced projects. The tax holiday signals India's clear intent to become the backbone of AI and other cloud services. The Budget proposes to offer a tax holiday till 2047 to foreign cloud service providers who use data centres in India, aiming to make the country a global cloud workload destination - by removing a tax that had discouraged companies from setting up compute infrastructure here. Until now, foreign cloud firms serving Indian customers could avoid tax by processing data in overseas hubs, such as Singapore, Malaysia and Indonesia.The exemption removes a tax exposure that would otherwise arise purely from using Indian data centres, said Rajiv Chugh, partner at EY India. The tax holiday ensur-es foreign cloud providers are no worse off by using Indian data centres. Chugh said the timing was significant. "With Singapore tightening power availability, global cloud providers are actively looking for alternatives."The upside for India comes from greater infrastructure activity here. Payments that flow to overseas data centres could instead accrue to Indian operators.Union minister for electronics and IT Ashwini Vaishnaw said that investments in India's data centre sector could rise to $200 billion, from about $70 billion.Narendra Sen, CEO of RackBank Data Centres, said India accounts for nearly 20% of the global data economy but hosts only a small share of global data centre capacity.Sunil Gupta, CEO of Yotta Data Services, said the combination of tax holiday and 15% safe harbour on cost offers predictability, encouraging global cloud providers to rely on Indian partners. Salesforce South Asia CEO Arundhati Bhattach-arya said long-term policy clarity around cloud and data infrastructure would stre-ngthen India's position as a hub for AI-led innovation. Microsoft India & South Asia president Puneet Chandok said the Budget recognises data centres and cloud infrastructure as strategic national assets underpinning AI adoption, public services and enterprise innovation.