In a major push to attract global business and investment in digital infrastructure, the government has unveiled a series of incentives for the data centre sector in the Union Budget 2026, positioning India as a preferred global hub for digital services. 

As part of the proposals, foreign companies providing services globally by procuring data centre services in India will be eligible for a tax holiday extending up to 2047. The move is aimed at encouraging multinational firms to locate their data processing and storage requirements in India, leveraging the country’s expanding digital infrastructure and competitive cost base. 

At the same time, the government has clarified that services provided to Indian users will continue to be taxed in India. Such services will be routed through Indian resellers and taxed accordingly, ensuring that domestic consumption remains within the country’s tax net while global services benefit from the proposed incentives. 

What is tax holiday 

A tax holiday is a policy incentive under which companies are exempt from paying certain taxes for a defined period, usually to attract investment into priority sectors, lower initial project costs and draw global players. 

15% safe harbour for resident entities 

In another key measure, the Budget has proposed a 15% safe harbour for resident entities supplying data centre services to related foreign companies. This is expected to provide greater certainty on transfer pricing and reduce litigation, making it easier for Indian data centre operators to service global affiliates of multinational groups. 

The Income Tax Department said that to attract global business and investment in digital infrastructure, Budget 2026 has proposed a series of measures. 

A tax holiday up to 2047 will be offered to foreign companies providing global services by procuring data centre services in India. 

Services provided to Indian users will be routed through Indian resellers and taxed in India. 

A 15% safe harbour will be provided to resident entities supplying data centre services to related foreign companies. 

Industry experts said the measures signal a long-term policy commitment to building India’s digital infrastructure ecosystem, particularly as demand for cloud computing, artificial intelligence and data-driven services accelerates worldwide. The extended tax holiday up to 2047 aligns with India’s broader vision of becoming a global digital economy and complements earlier efforts to promote manufacturing, innovation and technology-led growth. 

The proposals are expected to benefit domestic data centre operators, global cloud service providers and allied sectors such as power, real estate and telecom while reinforcing India’s position as a trusted destination for global digital services amid rising geopolitical and data sovereignty concerns.