Union Budget bets on AI, offers tax holiday till 2047 for cloud firms in India

New Delhi, Feb 1: The Union Budget on Sunday proposed a tax holiday until 2047 for foreign companies providing cloud services to global customers using data centres located in India, signalling the government’s intent to position the country as a major hub for artificial intelligence and digital infrastructure.

The push for data centres comes as India prepares to take centre stage in global discussions on artificial intelligence, aiming to evolve from a consumer of cloud and AI services into a key base for the world’s digital backbone.

By linking tax incentives to the provision of global services from Indian facilities, the policy seeks to transform India into an export hub for cloud computing.

Presenting the Union Budget 2026–27, Finance Minister Nirmala Sitharaman said, “Recognising the need to enable critical infrastructure and boost investment in data centres, I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India.”

Such companies will, however, be required to serve Indian customers through an Indian reseller entity.

Sitharaman also announced additional tax clarity, stating, “I also propose to provide a safe harbour of 15 per cent on cost in case the company providing data centre services from India is a related entity.”

Data centres are secure facilities housing powerful servers that store, process and transmit digital data, supporting services ranging from email and banking to streaming platforms and cloud computing. These facilities rely on specialised infrastructure, including uninterrupted power supply, advanced cooling systems and round-the-clock monitoring, as even brief downtime can disrupt millions of users.

With the rapid growth of AI, cloud computing and digital payments, data centres are increasingly seen as critical infrastructure, comparable to roads and power plants, forming the backbone of India’s digital economy.

India is also eyeing a leadership role in global AI dialogue, with New Delhi set to host the India AI Impact Summit, the first such event in the Global South. Scheduled from February 16 to 20, 2026, at Bharat Mandapam, the summit will bring together global leaders, ministers, top executives and academics.

Earlier this week, IT Minister Ashwini Vaishnaw said investments worth nearly USD 70 billion are already flowing into the AI infrastructure layer, with the potential to double by the summit’s conclusion.

Last year, technology giants Microsoft and Google announced multi-billion-dollar investments to build large-scale data centres and sovereign AI infrastructure in India.

PTI