Budget 2026: India Offers Tax Holiday till 2047 to Global Cloud Companies

Tax Holiday Proposal in Union Budget 2026

Union Finance Minister Nirmala Sitharaman has unveiled a long-term tax incentive in the Union Budget 2026, proposing a tax holiday until 2047 for select foreign companies . The announcement reflects a strategic effort to strengthen India’s digital infrastructure and position the country as a preferred global destination for cloud computing and data services.

Understanding a Tax Holiday

A tax holiday refers to a policy measure under which eligible entities receive a temporary or long-term exemption from specific taxes . Governments deploy such incentives to attract foreign direct investment, offset high initial capital costs, and encourage activity in priority or emerging sectors. These incentives are especially relevant for infrastructure-heavy industries where returns accrue over long time horizons.

Incentive for Global Cloud Service Providers

Under the Budget 2026 proposal, foreign companies providing cloud services globally through data centres located in India will be eligible for the tax holiday up to 2047. The policy is designed to draw large-scale investments into India’s data centre ecosystem, which underpins cloud computing, artificial intelligence, fintech platforms, and digital public infrastructure.

By offering long-term tax certainty, the government aims to reduce investment risk and encourage global technology firms to anchor their data storage and processing operations within India.

Conditions and Safeguards for Domestic Participation

The incentive is subject to specific conditions. Foreign cloud providers must serve Indian customers through an Indian reseller entity , ensuring domestic participation in service delivery. This requirement is intended to promote local value addition, employment generation, and knowledge transfer, while preventing the digital ecosystem from becoming entirely foreign-controlled.

Important Facts for Exams

• A tax holiday provides exemption from certain taxes to promote investment.

• Budget 2026 offers a tax holiday till 2047 for eligible foreign cloud companies.

• Data centres are treated as critical digital infrastructure.

• Serving Indian customers through an Indian reseller is mandatory.

Wider IT and Digital Economy Reforms

The tax holiday is part of a broader set of IT-sector reforms announced in the Budget. Software development, IT-enabled services, knowledge process outsourcing, and contract R&D have been consolidated under a single category termed “Information Technology Services.” A uniform safe harbour margin of 15.5 per cent has been introduced, with the eligibility threshold raised significantly and approvals moved to automated systems.

Together, these measures reinforce India’s ambition to combine tax certainty, regulatory simplicity, and digital infrastructure strength, positioning the country as a long-term global hub for cloud services, data centres, and advanced digital innovation.