Tax Holiday for Data Centres in India Till 2047 – Explained

• Taxation
• ||
• June 26, 2026

If you are a foreign company, investor, or cloud service provider thinking about setting up a data centre in India, there is one big announcement you need to know about. In the Union Budget 2026-27,

The tax holiday for data centres in India till 2047 is a major opportunity for foreign cloud companies, global investors, AI businesses, and hyperscalers planning to enter India’s fast-growing digital infrastructure market, this incentive allows eligible foreign companies providing global cloud services through Indian data centres to earn tax-free income from overseas customers until 2047, subject to specific government conditions. With India pushing to become a global hub for cloud computing, AI infrastructure, and data centre investment, this policy can reduce tax risk, improve long-term certainty, and make India a more attractive destination for foreign companies looking to set up data centre operations or cloud infrastructure in India.

What is the Data Centre Tax Holiday till 2047?

On February 1, 2026, Finance Minister Nirmala Sitharaman announced that any foreign company providing cloud services to customers globally — by using data centre services located in India — will get a tax holiday until the financial year 2046-47. In simple words, that is a 21-year tax holiday, running till 2047, which is also the year of India’s 100th year of independence.

This was later confirmed through the Finance Act, 2026, by inserting a new exemption (Entry 13C in Schedule IV, read with Section 11 of the Income-tax Act, 2025). Instead of changing the basic tax rules, the government created a separate, targeted exemption just for this purpose. This tells you the government is serious about this benefit staying stable for the long term.

In plain terms: if you run your global cloud business through a data centre based in India, the income you earn from customers outside India will not be taxed by the Indian government — till 2047.

Why Did India Announce This Tax Holiday?

The government has officially classified data centres as critical infrastructure, putting them in the same category as roads, ports, and power plants. The reasoning behind this big decision includes:

• India generates around 20% of the world’s data but currently holds only about 3-5% of global data centre capacity. There is a huge gap to fill.
• Global demand for AI computing, cloud storage, and digital services is growing rapidly, and countries are competing to attract this investment.
• India wants to compete with hubs like Singapore, the Middle East, and even China to become a top global destination for cloud and AI infrastructure.
• Investments worth nearly USD 70 billion are already underway in India’s data centre sector, with another USD 90 billion in announced projects. The tax holiday is designed to accelerate this further.
• According to India’s IT Minister, this incentive alone could attract investments worth up to USD 200 billion.

For foreign hyperscalers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, this removes a long-standing worry: that simply using Indian servers could expose their entire global income to Indian taxation. The tax holiday removes that risk completely.

Who is eligible for data centre tax exemptions/holidays in India? The 4 Key Conditions

This tax exemption is not automatic. The Finance Ministry has clarified that a foreign company must meet four essential conditions to qualify for this data centre tax exemption in India:

1. The foreign company must be notified by the Central Government. Only companies officially approved and “notified” by the government can claim this benefit — it isn’t open to everyone automatically.
2. The data centre must belong to an Indian company. The foreign company cannot own or operate the physical data centre infrastructure itself. It must procure data centre services from an Indian entity.
3. The data centre must be a “specified” or MeitY-notified data centre. The facility must be officially recognised by the Ministry of Electronics and Information Technology (MeitY) as meeting prescribed standards.
4. Sales to Indian customers must go through an Indian reseller. If the foreign company also wants to serve customers within India, it must do so through a separate, locally incorporated Indian reseller company — which will be taxed normally under Indian law.

So, while global income (from customers outside India) routed through an Indian data centre becomes tax-free, any income from Indian customers stays fully taxable in India through the reseller entity.

What about the 15% Safe Harbour Rule?

Along with the tax holiday, the Budget also introduced a 15% safe harbour margin for data centre transactions between related parties (for example, a foreign cloud company and its own Indian subsidiary running the data centre).

In simple terms: if your Indian data centre entity is part of the same corporate group as the foreign cloud company, the government has pre-approved a 15% profit margin on cost as fair and reasonable. This removes the risk of long, complicated transfer pricing disputes with Indian tax authorities — a major pain point for multinational companies in the past.

Additionally, the safe harbour threshold for IT and IT-enabled services has been raised to ₹ 200rore, up from the earlier limit of ₹ 300 crore. This means even very large transactions can now benefit from simplified, low-dispute tax treatment.

Why does this tax holiday for data centres matter for Foreign Businesses?

If you are a business owner, investor, or cloud provider based outside India, here is why this policy is genuinely worth your attention:

• Tax certainty for two decades. Most countries don’t offer policy visibility this far ahead. A 21-year horizon lets you plan long-term capital investment with confidence.
• No fear of “permanent establishment” risk. Earlier, foreign companies worried that using Indian servers could create a taxable presence in India. This exemption removes that risk for eligible companies.
• Lower cost of doing business. Combined with the 15% safe harbour, your group’s India-related tax exposure becomes far more predictable and manageable.
• 100% FDI allowed. Separately from the tax holiday, India already allows 100% Foreign Direct Investment (FDI) in data centres under the automatic route, meaning no prior government approval is generally required (except for investments from countries sharing a land border with India, such as China).
• Access to a fast-growing market. India’s data centre power capacity is expected to more than double by 2030, backed by strong demand from AI, fintech, e-commerce, and enterprise IT sectors.
• State-level incentives stack on top. States like Maharashtra, Tamil Nadu, Telangana, Karnataka, Uttar Pradesh, and Haryana offer their own additional benefits — electricity duty exemptions, stamp duty waivers, concessional land rates, and single-window clearances — on top of this central tax holiday.

Tax Holiday vs Normal Tax Rate: A Quick Comparison

Things to Keep in Mind Before You Apply

While the tax holiday is attractive, there are a few practical points foreign companies should plan for:

• Get “notified” status early. Since the exemption only applies once your company is officially notified by the government, factor this approval timeline into your project planning.
• Choose the right ownership structure. Because the foreign company cannot own or operate the data centre’s physical infrastructure directly, your investment structure needs careful legal planning — especially for captive or in-house data centre models.
• Power and water availability matter. Data centres, especially AI-focused ones, consume large amounts of electricity and water. States with reliable power supply and renewable energy access (like Maharashtra and Tamil Nadu) are generally a safer bet.
• Domestic data localization rules still apply separately. While India’s main data protection law (the DPDP Act, 2023) doesn’t mandate blanket data localization, sector regulators like the RBI, SEBI, and IRDAI require certain categories of financial and insurance data to be stored within India regardless of this tax holiday.
• This is different from setting up a data centre itself. The tax holiday is a fiscal incentive layered on top of the actual process of establishing a data centre in India — which involves separate approvals, land acquisition, and MeitY certification.

Final Thoughts

The tax holiday for data centres in India till 2047 is a clear signal: the Indian Government wants to become one of the world’s leading destinations for cloud computing, AI infrastructure, and digital services — and it is willing to offer two decades of tax certainty to make that happen. For foreign cloud companies and global investors, this is a rare, long-term opportunity to expand into one of the fastest-growing digital markets in the world, with reduced tax risk and strong policy backing.

If you are exploring entry into India’s data centre and cloud infrastructure sector — whether through a subsidiary, joint venture, or captive structure — getting your tax structuring, FDI compliance, and notification process right from day one is essential.

How Mercurius can help you in establishing data centres in India

This is where it gets simple for you. At Mercurius ,we help foreign companies enter and set up in India every day – and a data centre is exactly the kind of capital-intensive, compliance-heavy project where the right structure from day one saves you crores later.

We can support you end to end:

• Entry strategy and company formation in India (subsidiary, JV, or branch)
• FDI and Press Note 3 advisory, RBI and regulatory filings
• Tax structuring to qualify for the 2047 tax holiday and the 15% safe harbour
• Transfer pricing, GST, and ongoing compliance, including DPDP readiness
• State incentive and SEZ applications, plus accounting, payroll, and audit support

Think of us as your on-ground team in India, so you can focus on building the data centre while we handle the regulatory headaches.

Ready to explore setting up your data centre in India? Get in touch with Mercurius at info@masllp.com for a no-obligation conversation.