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India's 2026-27 Budget includes a 20-year tax holiday for foreign companies providing global cloud services through MeitY-notified data centres in the country. The scheme protects these firms from having their global income taxed in India, while services for Indian customers must go through a domestic reseller. To qualify, companies must meet four conditions, including being notified under the Companies Act and partnering with an Indian data centre. Profits from domestic activities remain taxable, with a 15% safe harbour margin for related entities. The initiative aims to boost data centre investment.
The Finance Ministry has clarified that a recent Budget proposal granting a 20-year tax holiday to foreign companies providing global cloud services will be applicable only to those firms that operate through a Ministry of Electronics and Information Technology (MeitY)-notified data centre in India. Officials confirmed that such companies will face no risk of their global income being taxed in India as part of this scheme. Advertisement
The measure aims to give certainty to international cloud service providers that they can source services from Indian data centres without any tax-related concerns. Ministry sources noted that Indian data centres can now confidently offer services to global cloud entities, knowing that their clients' overseas income will not attract Indian taxation.
Finance Minister Nirmala Sitharaman, in the 2026-27 Budget, proposed that any foreign company providing cloud services to customers worldwide through an Indian data centre will be eligible for a tax holiday until 2047. However, services offered to Indian customers must be routed through a domestic reseller entity. The initiative is intended to encourage further investment in India's data centre ecosystem.
To qualify for this tax holiday, foreign companies must meet four key conditions. First, they must be notified foreign companies as defined under the Companies Act, meaning they are incorporated outside India but have a place of business in the country and operate with foreign capital. Between 2020 and 2024, around 350 foreign companies across various sectors registered with the Ministry of Corporate Affairs.
Second, the Indian data centre providing services must be an Indian company. Third, the data centre itself must be notified by MeitY. Fourth, any services offered to Indian users by the foreign company must be delivered through a domestic reseller entity.
Profits arising from domestic economic activities, such as services provided by the Indian data centre to the foreign company or resale of cloud services to Indian customers, will remain taxable like any other domestic company. For cases where the Indian data centre is a related entity of a foreign company (cost plus arrangement), a safe harbour margin of 15% will apply. Ministry sources emphasized that the treatment of foreign cloud service entities remains consistent whether the Indian data centre is independently owned or a subsidiary of the global firm, ensuring a level-playing field.
Source PTI
FAQ
Q1. What is the key announcement regarding foreign cloud companies in India's 2026-27 Budget?
The Union Budget 2026-27 offers a 20-year tax holiday for foreign companies providing global cloud services through Ministry of Electronics and Information Technology (MeitY)-notified data centres in India. Under this scheme, these firms' global income will not be taxed in India, while profits from domestic activities remain taxable. The initiative aims to attract foreign investment into India's data centre ecosystem and strengthen the country's position as a global cloud services hub.
Q2. How will the tax holiday affect services offered to Indian customers?
Foreign cloud providers must route services for Indian customers through a domestic reseller entity. This ensures that domestic transactions remain taxable and regulated under Indian tax law. By doing so, the government balances incentivising global cloud operations while protecting domestic tax revenues.
Q3. What are the eligibility conditions for foreign cloud companies to avail the tax holiday?
To qualify for the 20-year tax holiday, foreign cloud providers must meet four main conditions. First, they must be recognised as a notified foreign company under the Companies Act, meaning they are incorporated outside India, operate with foreign capital, and maintain a place of business in the country. Second, the company must partner with an Indian data centre that provides the cloud services. Third, the data centre itself must be notified by MeitY to ensure compliance with regulatory standards. Finally, any cloud services offered to Indian customers must be delivered via a domestic reseller entity. Meeting all these conditions allows the foreign firm to fully benefit from the tax holiday while adhering to India's legal framework.
Q4. Are domestic profits of the Indian data centre taxable?
Yes. Profits arising from domestic economic activities, such as services provided to the foreign company or reselling cloud services to Indian customers, will remain taxable like any other domestic company. For related-party arrangements between the foreign company and Indian data centre, a safe harbour margin of 15% applies to ensure fair taxation.
Q5. How does this scheme impact India's data centre ecosystem?
The tax holiday provides certainty for foreign cloud companies sourcing services from Indian data centres, encouraging global firms to invest in India's infrastructure. This is expected to boost data centre development, create employment, and enhance India's position as a competitive hub for cloud and digital services globally.
Q6. Are there safeguards to ensure fair treatment of subsidiaries and independent data centres?
Yes. The tax treatment is consistent whether the Indian data centre is independently owned or a subsidiary of the foreign cloud company. This ensures a level playing field for all data centre operators while maintaining clear guidelines for related-party transactions and cost-plus arrangements.
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