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Informist, Wednesday, Feb. 4, 2026

 

NEW DELHI – Tax exemptions for foreign companies offering cloud services through data centres located in India, announced in the Budget for 2026-27 (Apr-Mar), will be available only if some specific conditions are met, sources in the finance ministry said Wednesday. In her Budget speech, Finance Minister Nirmala Sitharaman announced a tax holiday till 2047 for foreign cloud service providers that serve global customers using data centre infrastructure in India. She also clarified that services to Indian customers must be routed through an Indian reseller entity.

 

According to sources, the exemption announced in the Budget for 2026–27 applies to foreign companies offering cloud services globally, including in India, and will be available from the 2026–27 tax year through 2046–47. They outlined some mandatory conditions for eligibility. First, the foreign company must be notified by the government. Second, the data centre from which services are procured must be an Indian company. Third, the data centre itself must be notified by the Ministry of Electronics and Information Technology. Fourth, cloud services provided by the foreign company to Indian users must be delivered through an Indian reseller entity that is also an Indian company.

 

Sources in the ministry said the exemption is aimed at providing certainty to foreign cloud service providers sourcing data centre services from India, as it eliminates the risk of their global income being taxed in India on this account. The finance minister also proposed a safe harbour margin of 15% on costs in cases where the Indian data centre providing services is a related entity of the foreign cloud service provider.

 

At the same time, income generated from domestic economic activities will continue to be taxed in India. These include profits earned by the resident data centre from providing services to the global cloud entity, as well as income earned by the resident reseller entity from selling cloud services to Indian customers. In cases where the Indian data centre is a related entity operating on a cost-plus basis, a safe harbour margin of 15% will be applicable.

 

The tax treatment for foreign cloud service providers will remain identical regardless of whether the Indian data centre is independently owned or a subsidiary of the global entity. "There is a complete level playing field. Now, Indian data centres can confidently offer their services to such global cloud entities, without these global entities perceiving any tax risk if they use Indian data centres," one of the sources said.  End

 

Reported by Krity Ambey

Edited by Avishek Dutta

 

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