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The Union Budget has proposed a long-term tax holiday to encourage global investment in India's digital infrastructure ecosystem. The incentive applies to foreign companies offering cloud services globally through data centres located in India, with benefits extending until 2047. Industry experts believe the move will support large-scale data centre development, improve tax certainty for IT and Global Capability Centres, and strengthen India's role in cloud, AI and digital services. The proposal aligns with rising demand for secure and scalable digital infrastructure across sectors.
The Union Budget introduced a significant tax incentive aimed at accelerating investment in India's digital infrastructure. The proposal offers a tax holiday until 2047 for foreign companies that provide cloud services to global customers using data centres based in India. These companies will be required to serve Indian customers through an Indian reseller entity to qualify for the benefit. Advertisement
Technology and infrastructure experts noted that data centres have become a core part of the country's economic framework, supporting sectors such as banking, e-commerce, government services and digital payments. With the increasing adoption of artificial intelligence, cloud computing and data-driven services, demand for high-capacity and reliable data centre infrastructure is expected to rise steadily.
Industry bodies welcomed the measure, stating that the long-term tax clarity could attract sustained foreign capital into India's digital backbone. Leaders from the IT sector indicated that the policy strengthens India's competitiveness as a preferred destination for hyperscale data centres and global cloud infrastructure deployments.
The Budget also introduced changes to simplify taxation for IT services and Global Capability Centres. A uniform safe harbour margin of 15.5 per cent was announced across multiple IT service segments. According to industry representatives, this step addresses long-standing concerns around compliance complexity and transfer pricing disputes, while improving predictability for multinational companies operating in India.
Recent announcements by global technology firms have highlighted growing investment interest in India's digital infrastructure, including large commitments toward AI-led computing capacity and data centre expansion. Analysts pointed out that such investments require long-term policy stability, particularly in areas such as taxation, power availability and connectivity.
Data centres are capital-intensive assets that rely on uninterrupted power supply, advanced cooling systems and strong network infrastructure. The tax holiday is expected to support both international operators and domestic partners, helping scale capacity while encouraging the development of local ecosystems around data storage and cloud services.
Policy experts added that the incentive reflects a broader shift in government strategy toward positioning digital infrastructure on par with physical infrastructure. The move complements earlier initiatives supporting electronics manufacturing, semiconductor development and technology-led growth.
Source PTI
FAQ
Q1. What key tax incentive has been proposed in the Union Budget for digital infrastructure?
The Union Budget has proposed a long-term tax holiday to encourage global investment in India's digital infrastructure ecosystem. The incentive applies to foreign companies that provide cloud services to international customers using data centres located in India. The tax benefit is expected to remain available until 2047, offering long-term clarity and stability for investors planning large-scale infrastructure projects.
Q2. What conditions must companies meet to qualify for this tax holiday?
To qualify for the tax holiday, foreign cloud service providers must operate their data centres in India while serving global customers. At the same time, services offered to Indian customers must be routed through an Indian reseller entity. This structure is intended to ensure domestic participation while still allowing India-based infrastructure to support international operations.
Q3. Why is this measure considered important for India's digital economy?
Data centres are increasingly central to India's economic and digital ecosystem, supporting banking, e-commerce, government platforms, digital payments, and emerging AI-based services. With rising demand for cloud computing and data-driven applications, the need for scalable and reliable data infrastructure is growing. The tax incentive is seen as a way to strengthen India's capacity to meet this demand while positioning the country as a global digital services hub.
Q4. How has the industry responded to the proposed tax holiday?
Industry bodies and technology leaders have welcomed the move, stating that long-term tax certainty can attract sustained foreign investment into India's digital backbone. Experts believe the proposal improves India's competitiveness as a destination for hyperscale data centres and global cloud infrastructure. It is also expected to support long-term planning and capital deployment by multinational technology companies.
Q5. What other taxation-related changes were announced for the technology sector?
The Budget introduced measures to simplify taxation for IT services and Global Capability Centres. A uniform safe harbour margin of 15.5 per cent has been announced across multiple IT service segments. Industry representatives noted that this addresses long-standing issues related to compliance complexity and transfer pricing disputes, while improving predictability for companies operating in India.
Q6. How does this proposal fit into the government's broader infrastructure strategy?
Policy experts view the tax holiday as part of a broader shift toward treating digital infrastructure on par with physical infrastructure. The move complements earlier initiatives supporting electronics manufacturing, semiconductor development, and technology-led growth. By encouraging data centre investment, the government aims to strengthen India's role in cloud computing, AI, and digital services while supporting long-term economic development.
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