No Tax Risk for Global Cloud Firms Using India Data Centres: Govt

The Finance Ministry has clarified that foreign companies setting up or using data centres in India will not face any tax risk on their global income, addressing concerns following the Budget 2026–27 announcement of a long-term tax incentive for cloud service providers.

According to official sources, the proposed 20-year tax holiday, valid until 2047, will apply only to foreign companies that provide cloud services globally by using data centre infrastructure located in India and notified by the Ministry of Electronics and Information Technology (MeitY). The government has made it clear that this benefit will not lead to taxation of the overseas firms’ global income in India, offering much-needed certainty to global cloud and procurement service providers.

The move is expected to encourage foreign companies to confidently use Indian data centres without fearing additional tax exposure. Finance Ministry sources said the proposal is designed to boost investment in India’s growing data centre ecosystem and strengthen the country’s position as a global digital infrastructure hub. To qualify for the tax holiday, foreign companies must meet four key conditions.

First, the company must be a notified foreign entity, meaning it is incorporated outside India but has a place of business in the country. Between 2020 and 2024, around 350 foreign companies across sectors have registered with the Ministry of Corporate Affairs.

Second, the data centre providing services must be an Indian company. Third, the data centre itself must be officially notified by MeitY. Fourth, any cloud services offered to Indian customers must be routed through an Indian reseller entity.

The government clarified that income earned from domestic activities, such as services provided by Indian data centres to foreign companies or resale of cloud services within India, will continue to be taxed under existing rules. In cases where the Indian data centre is a related entity of the foreign company, a safe harbour margin of 15 percent will apply to ensure fair taxation.

Importantly, the tax treatment remains the same whether the data centre is Indian-owned or a subsidiary of a global firm, ensuring a level playing field. Overall, the policy aims to attract global cloud players, create certainty on taxation, and accelerate India’s data centre investment momentum.

Source: Business Standard