Budget's Data Centre push wins applause, but sparks level-playing-field concerns

The headline-grabbing provision offers a tax shield for over two decades, specifically designed to attract long-term capital from global cloud giants.

• India offers tax holiday for foreign cloud firms using local data centers till 2047.
• Policy aims to attract global cloud investment, but excludes Indian providers
• Move to boost AI, jobs, and position India as a digital hub

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The Union Budget 2026 has set the stage for India to become a global digital powerhouse, with the Finance Minister announcing a landmark tax holiday until 2047 for foreign companies providing cloud services through India-based data centre infrastructure.

While the move has been hailed by hyperscalers and analysts as a "strategic declaration" to turn India into the world’s digital backbone, some have flagged the exclusion of homegrown providers.

The headline-grabbing provision offers a tax shield for over two decades, specifically designed to attract long-term capital from global cloud giants.

Industry leaders believe this move is India’s play to outcompete established hubs like Singapore, Ireland, and the Middle East for global cloud infrastructure investment.

"India’s proposed tax holiday... is more than a fiscal incentive, it is a strategic declaration," said Abhinav Johri, Partner, Technology Consulting at EY India. He added that the policy enables a critical shift: "moving India up the value chain from consuming global cloud services to exporting trusted digital infrastructure".

Supporting this shift is the introduction of a 15.5 percent safe harbour rule, which experts say will provide much-needed predictability to cross-border tax assessments and significantly reduce the threat of litigation.

Pratap Daruka, CFO of Tredence, called this clarity an "actual game changer" for unlocking private investment in AI workloads.

Also, read: Data Centre tax holiday to benefit Indian players, GPU infra big way: Yotta CEO Gupta

Spokesperson of Nxtra by Airtel said it is welcoming to see the efforts by the Indian Government to boost the country’s data centre market in the Union Budget 2026. "These measures will be a game-changer that will accelerate India’s digital ambitions and position us as a global hub for AI and cloud innovation."

Domestic Players Flag an ‘Incentive Gap’

Despite the widespread applause, the policy has highlighted a stark divide.

The tax holiday is exclusively targeted at foreign companies serving international customers from Indian soil.

Piyush Prakashchandra Somani, Managing Director and Chairman of cloud, data centre, and managed services firm ESDS, termed the Union Budget 2026-27 as India's play to compete with Singapore, Ireland, and the Middle East for global cloud infrastructure investment.

“The tax holiday is exclusively designed to attract foreign companies to establish data centre operations in India and serve their international customers from Indian soil. Existing Indian cloud service providers who have been building and operating data centres in India for years do not receive any tax benefit from this provision. The incentive is squarely aimed at bringing foreign investment and global workloads into India, not at supporting the domestic cloud industry that already operates here,” Somani added.

The AI Multiplier Effect

The push for data centres is linked to India’s AI ambitions. Global tech giants like Microsoft highlighted that the budget’s focus on resilient compute capacity is essential as AI adoption accelerates.

Puneet Chandok, President of Microsoft India & South Asia, stated that long-term policy certainty recognises digital infrastructure as "strategic national infrastructure".

However, some industry voices cautioned that infrastructure alone is not enough.

Srividya Kannan, Founder-CEO of Avaali, noted that while the budget addresses workforce readiness, "targeted support for AI product-led innovation remains limited".

She emphasised that global leadership will depend on building world-class products, not just deploying foreign technologies.

Also, read: Budget 2026: Cutting-edge technologies, including AI, can serve as growth multipliers, says Finance Minister

The Road Ahead

As the sector processes the announcement, the consensus remains that India has sent its most consequential technology policy signal in years. By anchoring global cloud infrastructure within its borders, the government aims to strengthen sovereign digital capacity and catalyse a domestic ecosystem of startups, SaaS firms, and life sciences.

For the domestic industry, the opportunity now lies in the secondary ecosystem, jobs, supply chain development, and the potential for a surge in GPU infrastructure outsourcing, even as they continue to lobby for more inclusive fiscal support.

Also, read: Anant Raj Industries, E2E Networks, other data centre and AI stocks surge up to 7% on Budget tax break