As Indian polity emerges from the chrysalis of the Union Budget 2026-27 and the Economic Survey 2025-26, it behoves us to recognise that the country’s economic trajectory is not just a mere arc of traditional growth, but an ambitious ascent into the digital stratosphere. The survey’s projection of a sustained GDP expansion, with a growth band pencilled at 6.8-7.2% for FY27 due to global disruptions, bespeaks macroeconomic resilience amid global uncertainties, and foreshadows an India ready to proffer its expertise. 

Central to this narrative is a renewed embrace of international economic engagement, marked by a spate of bilateral trade pacts. The long-awaited India-European Union Free Trade Agreement (FTA), hailed as the “mother of all deals”, promises to recalibrate India’s integration into global supply chains, expand market access for manufactured and service exports, and bolster export resilience amid rising protectionism. The Donald Trump administration’s move to slash tariffs imposed on India to 18% imbues the outlook with further promise as the two countries are expected to sign the India-U.S. trade deal soon. 

Existential imperative called tax certainty 

New-age technology is not a transient buzzword but the linchpin of future competitiveness. India has already attracted an estimated $70 billion in AI computing infrastructure investment, laying the groundwork for an AI Mission 2.0 that promises democratised access to frontier technologies by 2030. In the intricate tapestry of India’s burgeoning digital economy, tax certainty emerges not as a peripheral convenience but as an existential imperative, particularly for capital-intensive ventures such as data centres, AI operations, and electronics manufacturing. 

The Economic Survey underlined both the opportunities and challenges, noting that while over 1.05 billion Indians are now connected online, positioning it as a prodigious source of data for AI ecosystems, the rising compute costs and reliance on foreign AI platforms underscore the exigency of tax reforms. 

This reformist flourish continued into the Budget announcements by finance minister Nirmala Sitharaman, as she unveiled a constellation of measures that signal India’s 

resolute intent to metamorphose from a mere participant in the digital revolution to its most vibrant amphitheatre. Among the most consequential of these are the safe harbour provisions, tax incentives and exemptions directed at data centres, and tolling arrangements for mega manufacturing (for non-resident recipients of services). 

In a resolute proclamation, Sitharaman unveiled a sweeping tax carve-out until 2047, which coincides with our centenary of independence, for foreign cloud service companies that deploy data centres on Indian soil and serve global customers. The caveat, however, is that these companies must provide services to Indian customers through an Indian reseller entity. It is a fiscal overture designed to attract non-residents to India’s digital landscape and strengthen its infrastructure. 

This magnanimous concession is intended to lower the often prohibitive cost of establishing and scaling high-capacity compute and storage facilities, a prerequisite for delivering tax certainty for modern services, from AI to cloud-native applications. 

Thrust on data and AI 

Coupled with the concession, the proposal of a 15% safe harbour regime on costs for related entities operating data centres in India aims to simplify transfer pricing and reduce the uncertainties that have traditionally dogged cross-border tech investments. These incentives can help reduce fiscal drag on capital-intensive investments while signalling an embrace of data-centric technology and AI infrastructure over the long term, and a clear policy reimagination of India’s position on cloud services and data centres. 

The provisions, couched in fiscal generosity, respond to longstanding industry pleas for certainty in international tax treatment and for clarity on the norms governing permanent establishment and profit attribution. 

Beyond the concession and state-specific incentives, India must, through the course of the year, envisage the architecture for a comprehensive National Data Centre Policy. Detailed consultations among the partner ministries, the ministry of finance, and MeitY will be critical to ensuring the translation of these tax reforms into real-time results. 

To this end, the final text of the policy should offer a nuanced position on what constitutes “data centre operations”, “cloud service operations”, and “Artificial Intelligence”, and provide clarity for non-resident taxpayers under the income-tax law. The design of this playbook and its interplay with the Budget announcements will effectively determine India’s long-term success in attracting FDIs in such future-sparked industries. 

The constitution of a high-powered committee to examine the impact of these safe harbours and tax holidays on the overall investment landscape for AI and data centre infrastructure in India should be on the glide path for policymakers, come 2027. The thrust on data centres and AI investments for India has never been higher. 

Such largesse, in the form of dedicated tax announcements, signals policymakers’ hitherto unparalleled magnetism for FDI, beckoning capital while simultaneously catalysing domestic infrastructure augmentation to meet India’s technological appetite. It also resonates law makers’ response to ambitious investment plans announced by domestic and foreign behemoths. The ramifications, in their capacious sweep, extend beyond 2026, as they presage a reformist era wherein India shall not merely participate in the global digital economy but assertively commandeer it, erecting edifices of data sovereignty. 

(Butani is managing partner; BMR Legal Advocates; Goswami is senior associate, BMR Legal Advocates. With inputs from Spandana Koona, associate, BMR Legal Advocates. Views are personal.)