India offers tax holiday until 2047 to attract global cloud & AI data centre

India has announced a broad set of incentives aimed at attracting global cloud service providers and AI infrastructure investors, including a long-term tax holiday for overseas cloud revenues tied to data centres located in the country.

Under proposals outlined in the Union Budget 2026, foreign cloud companies would be allowed to earn revenue from services sold outside India without paying taxes until 2047, provided those services are delivered using data centres based in India. Revenue from services sold to Indian customers would continue to be taxed domestically and routed through locally incorporated reseller entities.

The budget also introduces a 15% cost-plus safe harbour for Indian data centre operators that provide services to related foreign companies, a move intended to reduce uncertainty around transfer pricing.

The official statement read, “Recognising the need to enable critical infrastructure and boost investment in data centres, it is proposed to provide a tax holiday up to 2047 to any foreign company who provides services to any part of the world outside India by procuring data centre services in India. Sale of such services to Indian users shall be made through an Indian reseller entity and taxed appropriately.”

The measures come as global technology companies expand data centre capacity to meet rising demand from artificial intelligence workloads. With constraints emerging in the United States and parts of Europe, India is positioning itself as an alternative location for large-scale computing infrastructure, supported by a large engineering workforce and growing cloud adoption.

Major U.S. cloud providers have recently announced investments in India. Google said in October it would invest $15 billion to build an AI hub and expand data centre infrastructure, following a $10 billion commitment in 2020. Microsoft said in December it plans to invest $17.5 billion by 2029 to expand its AI and cloud operations, including new data centres and training programs. Amazon has said it will invest an additional $35 billion in India by 2030, raising its total planned investment in the country to about $75 billion.

India’s domestic data centre sector is also scaling up. In November, Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, said it would invest $11 billion by 2030 to develop a 1-gigawatt, AI-focused data centre campus in Andhra Pradesh. Separately, Adani Group said in December it plans to invest up to $5 billion alongside Google in an AI data centre project in India.

Beyond cloud computing, the budget also reinforces India’s ambitions in electronics and semiconductor manufacturing. A second phase of the India Semiconductor Mission will focus on equipment and materials manufacturing, domestic chip intellectual property, and full-stack capability development.

The government increased funding for the Electronics Components Manufacturing Scheme to Rs 400 billion after investment commitments exceeded initial targets. The scheme links incentives to production and investment, aiming to attract suppliers of components such as printed circuit boards, camera modules and server hardware.

Additional measures include a five-year tax exemption for foreign companies supplying equipment and tooling to electronics manufacturers operating in bonded zones. The budget also outlines plans to support mineral-rich states in developing rare-earth corridors covering mining, processing and downstream manufacturing, reflecting concerns over global supply chain risks.