No tax risk for foreign companies setting up data centres in India under new Budget proposal: Finance Ministry sources
New Delhi, Feb 4, 2026
Synopsis
Foreign companies offering cloud services globally will benefit from a 20-year tax holiday. This incentive is available to those using MeitY-notified data centers in India. Overseas firms face no risk of their global income being taxed in India. The move aims to boost investment in Indian data centers and provide certainty to foreign cloud service providers.
The Budget proposal of a 20-year tax holiday to foreign companies which provide cloud services globally will be available only to those which have set up a MeitY-notified data centre in India, and there will not be any risk for such overseas firms of their global income being taxed in India on this account, sources said on Wednesday.
Finance Ministry sources also said that the Budget announcement would also give certainty to foreign companies that are in the business of providing cloud services and procurement services from a data centre in India.
"Now Indian data centres can confidently offer their services to such global cloud entities, without these global entities perceiving any tax risk if they use Indian data centres," sources added.
Finance Minister Nirmala Sitharaman, in her 2026-27 Budget, had proposed to provide a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity.
The Budget proposal is aimed at boosting investment in data centres.
"There will not be any risk for such foreign companies of their global income being taxed in India on this account," finance ministry sources said.
Explaining the proposal, Finance Ministry sources said that to avail the tax holiday, a foreign company has to satisfy four essential conditions.
The first condition is that the foreign company is notified. As per the definition in the Companies Act, foreign companies are incorporated outside India, and they have a place of business in India. These companies are set up with foreign capital.
Between 2020 and 2024, about 350 foreign companies across various sectors have registered themselves with the Ministry of Corporate Affairs.
The second condition is that the data centre company in India from which data centre services are taken have to be an Indian company.
The third condition is that the data centre is notified by the Ministry of Electronics and Information Technology (MeitY).
The fourth is that the services by the foreign company to Indian users are provided through an Indian reseller entity, being an Indian company.
Finance Ministry sources said the profits on the income from domestic economic activities, that is, (i) data centre services to the global entity by the resident data centre; and (ii) resale of cloud services to Indian customers by the resident reseller entity, will remain taxable as any other domestic company.
However, where the Indian data centre is a related entity of a foreign company (cost plus centre), a safe harbour margin of 15 per cent is provided, sources said.
According to sources the treatment of foreign cloud services entities is the same whether the data centre is Indian owned or a subsidiary of the global entity. So, there is a complete level-playing field.
[The Economic Times]
