The Center on Sunday tabled a proposal for global cloud service providers such as Microsoft, Google and Amazon to make greater use of Indian data centers, promising zero tax on global cloud services provided by them through an Indian entity and from an Indian data center, Union Finance Minister Nirmala Sitharaman said in her budget speech in Parliament.
A worker works on top of an under-construction metro site near Amazon India’s headquarters in Bengaluru (AFP)”Acknowledging the need to attract global business and investment, enable critical infrastructure and increase investment in data centres, I propose tax holiday till 2047 to any foreign company providing cloud services to global customers using data center services from India,” said Sitharaman.
In the finance minister’s ninth consecutive budget, however, there was no clear announcement or spending on artificial intelligence (AI), as was announced during last year’s India AI Mission. On Thursday, the FY26 Economic Survey flagged that India will take a slow, measured approach to investing in AI rather than focusing on “scale”.
The Centre’s FY26 budget receipts say that the government has spent ₹800 crore this fiscal year under India AI Mission. For FY27, the Finance Ministry has set aside ₹1,000 crore for investment under the mission, which was announced in March 2024 with a net outlay of Rs. ₹10,372 crore.
Simply put, cloud providers need to use Indian data centers and offer their cloud platforms through Indian data centers to win tax benefits.
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Adding caveats, Seetharaman said, “However, services to Indian customers must be provided through an Indian reseller entity. I propose a safe harbor of 15% of the cost if the data center service provider from India is a related entity.”
Industry stakeholders have welcomed the move, citing it as a way to monetize India’s data center industry’s on-ground advantages and strong foundations for rapid expansion.
‘Critical for growth’
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“The budget combines long-term tax incentives for cloud and data center investment with a broader push for digital infrastructure and innovation. It recognizes that high-quality computing capacity is now critical to India’s growth, just like roads and electricity. As a homegrown, AI-ready data center platform, we see these measures as a positive retention, a positive sign for revenue spending,” said Vegesna, the IPO-bound data center operator, Cify. Chairman and Managing Director of Technologies.
Not all analysts saw the announcement as immediately positive. In an investor note after the Budget, analysts Venugopal Garey and Nikhil Arela of brokerage firm Bernstein said, “While (the data center tax holiday) sounds great, the ultimate impact may be less due to multiple complications. First, latency-sensitive use cases such as interactive apps may not be pursued or AI may only be used in training.”
“The second stems from the US cloud law that could prevent sensitive sectors from using data centers outside of India. The government’s intent, however, is clearer: to boost exports while ensuring that India doesn’t miss the AI bus. This goes back to the economic survey, which says frontier models can be too complex, with government resources seem too complicated for India). Create a strategy focused on cloud and data center services to benefit from the AI wave,” the note added.
Microsoft India and South Asia President Puneet Chandok added that the move will “accelerate the growth of sovereign-ready cloud and AI capabilities, strengthening the backbone of India’s economic resilience and global competitiveness. Recognizing AI and cloud infrastructure as a strategic national asset reflects a clear priority for technology-led growth.”
India, of late, has seen massive investment in data centers in the last six months. US-based big tech companies including Google and Microsoft, as well as Indian companies such as Tata Group, Reliance Industries, Adani Group and Greenco Group have committed to building large-scale data centers in India with incremental investment announcements exceeding $75 billion by 2025.
This expenditure is, of course, a multi-year investment, most of which is planned for the five years between 2025 and 2030.
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Huzefa Tavawala, partner and head of digital disruption at law firm Cyril Amarchand and Mangaldas, added that the move would “significantly encourage foreign direct investment and large-scale will accelerate infrastructure development.”
“The initiative is also in line with the National Data Center Policy 2025, which reinforces India’s ambition to emerge as a global leader in data center capacity. However, there seems to be a condition to provide services to Indian customers through an Indian reseller entity. The objective may be a level playing field for domestic service providers, but the original text of the Incorporation Act will be restated as text for the said relaxation,” he added.
On Friday, Union IT Minister Ashwini Vaishnab told reporters in New Delhi that the Center expects investment in AI infrastructure, primarily data centers, to likely double in February itself — a month when India is hosting the fourth global AI summit.
As part of the tax overhaul to attract global investment in India’s technology ecosystem, Sitharaman also said the Center could reduce the tax liability of storing electronics components in India for the technology manufacturing ecosystem.
“To harness the efficiency of just-in-time logistics for electronics manufacturing, I propose to provide safe harbor to non-residents for warehousing components in a bonded warehouse, at a profit margin of 2% on the invoice price. This will result in a tax of around 0.7%, which is much lower than Comp.
