The government has introduced a tax holiday for foreign cloud service providers until 2047 to encourage investment, establish digital infrastructure in India, and enhance the country’s global digital presence. This tax exemption, part of Budget 2026-27, applies to eligible foreign cloud service providers utilizing India-based data centers, exempting their income from Indian taxation from 2026–27 to 2046–47, subject to specific conditions.
This extended tax framework aims to provide long-term policy stability for capital-intensive investments, aligning with other initiatives in Budget 2026–27 such as the India Semiconductor Mission 2.0 and increased funding for the Electronics Components Manufacturing Scheme. These combined efforts target various segments of the technology value chain, spanning from semiconductor design and materials to electronics components, IT services, and digital infrastructure.
India’s data center sector is witnessing significant investment, with approximately $70 billion already in progress and an additional $90 billion in planned projects, underscoring substantial growth prospects. Current estimates indicate that India’s cloud data center capacity has reached about 1,280 MW and is anticipated to expand four to five times by 2030, reflecting the sector’s rapid evolution.
In a competitive landscape for AI infrastructure globally, India’s policy stance positions the country as a reliable and enduring hub for cloud and data center investments. According to United Nations Conference on Trade and Development (UNCTAD) estimates, data centers represented over one-fifth of global greenfield project values in 2025, with investments surpassing $270 billion. The escalating demand for AI compute and data-centric digital services intensifies the global race to attract such critical infrastructure.
The Budget also unveiled the India Semiconductor Mission 2.0, allocating Rs 1,000 crore to foster semiconductor equipment design and manufacturing in India, along with components manufacturing essential for semiconductor production. With 149 applications received, surpassing expectations and indicating robust industry engagement, the scheme aims to bolster India’s semiconductor ecosystem. Additionally, the Budget proposed a uniform safe harbor margin of 15.5 percent for IT services, a significant export sector for India with exports exceeding $220 billion.
