India Dangles Long Tax Holiday to Woo Global Cloud Giants

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India is offering a sweeping tax holiday and looser transfer-pricing rules to draw global cloud companies to build data centers in the country, as New Delhi sharpens its bid to become a long-term hub for artificial intelligence and digital infrastructure.

Under the Union Budget for 2026–27, foreign cloud providers such as Google, Amazon and Microsoft will be exempt from corporate tax on profits generated from India-based data centers until 2047, provided domestic sales are routed through local reseller entities, according to budget documents.

The incentives allow global cloud firms to serve overseas customers from India while remaining tax-exempt locally for more than two decades, a move officials said aligns data sovereignty goals with the scale needs of hyperscalers.

Indian sales must pass through domestic entities, ensuring local revenue participation and goods and services tax compliance.

Foreign cloud companies operating through Indian subsidiaries or affiliates will also be allowed to apply a fixed 15% markup on operating costs for transfer-pricing purposes under a safe-harbor regime.

The provision removes the need for audits or disputes over pricing, offering predictability for multinational firms running cost-plus models in India.

The measures come as India seeks to close a widening infrastructure gap.

The Economic Survey for 2025–26 noted that while the country generates nearly a fifth of the world’s data, it hosts only about 3% of global data centers, roughly 150 out of more than 11,000 worldwide.

Competing hubs such as Malaysia, Japan and Vietnam are rapidly expanding capacity with stronger policy support and more reliable power supply.

India’s data center capacity is projected to rise to about 8 gigawatts by 2030 from around 1.4 gigawatts in mid-2025, driven by cloud adoption and growing AI workloads, the survey said.

Real estate consultant Anarock said the extended tax holiday is likely to revive investment interest across major metros.

“The tax holiday for data centers till 2047 will boost demand,” said Anuj Puri, chairman of Anarock. “The requirement to serve the Indian market through local entities will also generate employment.”

Puri said Tier-1 cities such as Chennai, Mumbai and Bengaluru are expected to see renewed data-center investment, while Tier-2 locations including Jaipur and Vijayawada may gain traction. He added that expanded safe-harbor limits offer tax certainty, though the impact on commercial real estate is likely to be incremental, with a 5% to 10% pickup in established IT hubs.

Ratings firm CareEdge Ratings estimates India’s data-center sector could see capital expenditure of about ₹60,000 crore over fiscal years 2026 to 2028.

“A long-term tax holiday for foreign cloud providers till 2047 could further accelerate this trend, strengthening India’s position as a global hub for data and AI infrastructure,” said Tej Kiran, associate director at CareEdge.

Some executives said the measures go beyond data centers and could reshape India’s broader global capability center ecosystem.

Srinivasan Sarvabhouman, chief financial officer at ANSR, said the budget sends “a very strong and timely signal” to multinational firms evaluating India as a long-term base for technology operations.

“By clubbing software services, IT-enabled services, KPO and contract R&D under a single ‘Information Technology Services’ category and significantly expanding the safe-harbor threshold to ₹2,000 crore, the government has materially improved tax certainty and ease of operations,” Sarvabhouman said, adding that faster advance pricing agreement timelines and automated approvals would reduce long-standing transfer-pricing friction.

He said the tax holiday for global cloud providers strengthens the digital infrastructure backbone that global capability centers increasingly rely on for AI, data and cybersecurity work, reinforcing India’s position as a preferred location for higher-value global mandates.

Spokesperson of Nxtra Data Limited, a data center arm of telecom giant Bharti Airtel (Airtel) said that these measures will be a game-changer that will accelerate India’s digital ambitions and position the country as a global hub for AI and cloud innovation.