What is the Tax Holiday announced by FM in Budget 2026?

NEW DELHI: India has rolled out a long-dated tax break to tempt the world’s cloud and AI giants to plant their servers on Indian soil. The lure is simple and bold: base your data centres in India and your overseas cloud income can escape Indian tax until 2047.

A tax holiday, in essence, is a temporary exemption from certain taxes, used by governments to draw investment into priority sectors. It lowers early costs, improves returns and reduces risk for capital-heavy projects. In this case, the target is data centres, the backbone of artificial intelligence and digital services.

Under Budget 2026 proposals, foreign cloud companies can earn revenue from customers outside India without paying Indian tax, so long as those services are delivered through India-based data centres. Revenue from Indian users is excluded. That business must be routed through locally incorporated reseller entities and taxed in India.

An official statement said the proposal aims to “enable critical infrastructure and boost investment in data centres”, offering a tax holiday up to 2047 for foreign firms serving global markets via Indian facilities, while domestic sales are “taxed appropriately”.

The budget also offers a 15 per cent cost-plus safe harbour for Indian data centre operators serving related foreign companies, trimming transfer-pricing disputes and giving multinationals clearer guardrails on profit allocation.

The context is a global capacity crunch. AI workloads are soaring, power and land are tight in the United States and parts of Europe, and data centres are becoming strategic assets. India is pitching scale, skills and policy stability.

The money is already moving. Google has outlined a $15 billion investment in AI hubs and data centres after a $10 billion commitment in 2020. Microsoft plans $17.5 billion in AI and cloud expansion by 2029. Amazon has pledged another $35 billion by 2030, taking its planned India investment to about $75 billion.

Domestic groups are not sitting idle. Digital Connexion, backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, plans an $11 billion, 1-gigawatt AI-focused campus in Andhra Pradesh. Adani Group has mapped out up to $5 billion alongside Google for AI data centre projects.

The push stretches beyond servers. A second phase of the India Semiconductor Mission targets equipment, materials and domestic chip intellectual property. Funding for the Electronics Components Manufacturing Scheme has risen to Rs 400 billion. Foreign equipment suppliers to bonded-zone electronics makers get a five-year tax break, while rare-earth corridors are planned to secure supply chains.

The strategy is blunt. Offer tax certainty, pull in capital, build digital muscle. If it works, the world’s data may increasingly be stored, processed and streamed from India. The holiday runs to 2047. The race to host the AI age has begun.