The Union Budget 2026–27 has proposed a 21-year tax holiday, until 2047, for foreign companies that provide global cloud services using data centre infrastructure located in India. These firms are required to route their Indian business through a domestic reseller entity, which gives them a clearer and more predictable tax presence in the country. The idea is to make large, long-term data centre investments easier to plan and less exposed to sudden tax changes.
To cut down on transfer pricing disputes, the Budget also brings in Safe Harbour provisions for data centre and IT services. A Safe Harbour is a predefined profit margin that, if used, is generally accepted by the tax department without detailed audits, reducing uncertainty and compliance costs. For related-party data centre services tied to foreign cloud operations, the margin is set at a 15% mark-up on cost, in line with a 15.5% margin now applied more broadly to IT and IT-enabled services under a single “Information Technology Services” category.
There is a similar Safe Harbour for component warehousing. Non-resident companies can keep key server and network parts in bonded warehouses in India at a fixed profit margin of 2% on the invoice value, which works out to an effective tax rate of around 0.7%, lower than in many competing regional hubs. Together, these provisions are meant to make it easier and cheaper for global cloud providers to base more of their infrastructure and logistics in India.
How far these tax measures go in shaping investment decisions will also depend on what happens outside the tax code. The build-out of reliable and modernised power grids, high-quality connectivity, and smoother land acquisition processes for new data centre sites will be critical. Without progress on these fronts, the benefits of the new incentives may be harder to realise at scale.