Foreign cloud providers using local data centres to get tax holiday till 2047, FM announces in Budget

To qualify, such companies must route services for Indian customers through an Indian reseller entity.

• India proposes tax holiday for foreign cloud firms using local data centers till 2047
• Foreign firms need Indian resellers to qualify for the tax holiday.
• Major tech companies plan multi-billion dollar data centre investments in India

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Finance Minister Nirmala Sitharaman, on February 1, has proposed a landmark tax holiday until 2047 for foreign companies providing cloud services using data centre infrastructure located in India.

This move comes as global technology companies look to set up data centres in the country to cater to the growing adoption of AI products and services by Indian consumers.

To qualify, such companies must route services for Indian customers through an Indian reseller entity, ensuring that India not only becomes a global hub for cloud infrastructure, but also secures meaningful participation of domestic intermediaries in the value chain.

In her budget speech, Sitharaman said, “I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services.

Over the past year, some of the world’s largest tech companies have announced large-scale India plans to build AI-oriented data-centre infrastructure. The biggest among them is Google’s $15-billion gigawatt-scale ‘AI data-centre campus’ in Vizag, Andhra Pradesh, projected to create over 100,000 jobs during its construction phase.

Other announcements include OpenAI negotiating to set up a 1 GW data centre in India, Reliance Industries’ $11-billion joint venture to develop 1 GW of AI data capacity in Andhra Pradesh, Jio’s own data-centre build-out in Jamnagar, AWS committing $8.3 billion to cloud infrastructure in Maharashtra and Tata Consultancy Services (TCS) planning to invest around $6.5 billion over the next 5–7 years to build 1 GW of data-centre capacity.

India generates nearly 20 percent of the world’s data, yet hosts only about 3 percent of data centre capacity, offering a massive investment opportunity.

Hyperscalers wanted relief from ‘double’ taxation

Though local data centre operators provide hosting, colocation, and compute services to global CSPs on a principal-to-principal, arm’s length basis, there are concerns that such arrangements may be treated as creating a fixed place Permanent Establishment (PE) of the foreign CSPs in India.

This could potentially lead to double taxation and profit attribution disputes, according to software and technology industry body Nasscom.

“Here, any further attribution of income to foreign CSPs would result in double taxation and significant compliance uncertainty. This risk has a bearing on investments by several global cloud providers and data centre investors,” Nasscom had said in its pre-budget note.