Budget 2026: Tax holiday for Indian data centre ecosystem sets stage for accelerated investment, say industry leaders

The tech industry on Sunday welcomed the Centre’s move to introduce a tax incentive to promote investments in data centres, terming it a long-term, demand-driven vision for the country’s digital infrastructure sector. 

Recognising the growing importance of digital sovereignty and data centres as the backbone of a strong digital future, Union finance minister Nirmala Sitharaman, while presenting the Union Budget 2026-27, proposed a tax holiday until 2047 to foreign companies that provide services using data centres in India for the rest of the world. “It is also proposed to provide a safe harbour of 15% to the resident entity providing data centre services to a related foreign company (who is providing cloud services to any part of the world outside India),” the finance minister said in her speech.  

The focus is both timely and forward-looking, says Raju Vegesna, chairman & managing director, Sify Technologies Ltd. “As a home-grown, AI-ready data centre platform with a growing presence in India’s key digital hubs, we see these measures as a positive sign for sustained, cost-effective capacity creation. They also promote deeper partnerships with hyperscalers and faster cloud adoption by enterprises,” he says. “These initiatives will allow us to continue investing in energy-efficient, high-density infrastructure that supports India’s AI workloads, protects data sovereignty, and helps global and domestic customers run their most demanding applications in India. Overall, the Budget supports a long-term, demand-driven vision for the country’s digital infrastructure sector, which aligns with our goal of building India’s trusted, large-scale colocation and AI infrastructure platform,” he adds.   

A recent report from PWC put India’s current installed capacity of data centres at 1.5 GW with an estimated CAGR of about 20–24% between 2025 and 2035. The total capacity is expected to reach around 14 GW by 2035, backed by investment commitments from Indian and global data centre operators. Manpreet Singh Ahuja, chief clients officer and TMT leader, PwC India, believes the announcements would push India to become a digital value producer. “The Budget strengthens the foundations of a future-ready digital economy through three big moves: building global-scale digital infrastructure, deepening ‘trust by design’ in governance, and accelerating talent creation for the next wave of technology-led growth. For the technology ecosystem, the most significant announcement is the intent to make India a global hub for cloud and data infrastructure, via a tax holiday till 2047... This move, coupled with a more predictable tax and compliance regime for IT services, reduces uncertainty, improves capital confidence, and enables faster global scaling for India,” he says.  

Currently, India’s top data centre players include Sify Technologies, Tata Communications, STT GDC India, Japanese conglomerate NTT, Reliance, AdaniConneX, Bharti-backed Nxtra, and Hiranandani-backed Yotta. Sunil Gupta, co-founder, CEO & managing director, Yotta Data Service, believes the tax holiday will not just attract investment but also help the Indian cloud and data-centre companies to grow. The introduction of a safe harbour provision, including a defined 15% tax on cost for cloud and data centre services delivered through Indian operating entities, adds to the long-term certainty and scalability, making global players lean towards Indian entities because of predictability in taxation, compliance, and regulatory alignment, he says. 

As cloud and AI workloads move from experimentation to regulated and business-critical deployment, global cloud providers are unlikely to own and operate all physical infrastructure themselves, he notes. “Instead, they will increasingly adopt asset-light models, outsourcing both co-location and high-performance GPU infrastructure to trusted Indian partners while focussing on platforms, software, and customer engagement. This allows them to scale rapidly, manage capital and technology risk, and operate within a stable and transparent tax framework under the safe harbour regime,” he says.