India has introduced a landmark tax incentive aimed at drawing global investment into its artificial intelligence (AI) and cloud computing infrastructure. Under the proposal unveiled in the 2026–27 Union Budget, foreign cloud service providers will be eligible for a tax holiday through 2047 — effectively eliminating taxes on revenues from cloud services sold outside India — if those services run from data centres located in the country. The policy is designed to position India as a strategic global hub for AI computing and digital services.
To qualify for the tax break, foreign cloud companies such as Google Cloud, Microsoft Azure, and Amazon Web Services must operate their workloads from Indian data centres and meet certain conditions, including serving Indian customers through an Indian reseller entity. This condition aims to ensure domestic participation and compliance with local obligations while still unlocking the incentive for global operations. The proposal also includes provisions like a 15% safe harbour margin for related entities providing data centre services, which adds certainty and simplicity for firms planning their operations.
Industry leaders have broadly welcomed the move, seeing it as a powerful signal that India intends to build out its digital infrastructure capacity for the future. The tax holiday is expected to spur billions of dollars in investment into AI-ready data centres, help unlock new cloud and computing capacity, and align with India’s broader goals to accelerate digital growth and innovation. Analysts believe this could also help India attract a significant share of foreign direct investment in tech infrastructure over the next two decades.
However, some observers note that the success of this policy will depend on how effectively India can scale critical infrastructure — such as reliable power and cooling — to support massive data centre clusters, as well as on clear implementation of the tax rules. Still, the tax holiday underscores New Delhi’s ambition to become a global leader in AI and cloud services, leveraging its large talent pool and rapidly expanding digital economy.
