In a move poised to significantly boost India's digital infrastructure, the Union Budget 2026, presented on Sunday, February 1, 2026, includes a proposal for a tax holiday until 2047 for foreign companies that establish data centers within the country. This incentive is specifically targeted at companies providing cloud services to global customers, contingent upon their utilization of data center services based in India.
Finance Minister Nirmala Sitharaman, in her budget speech, emphasized the critical role of digital infrastructure and the need to attract global business and investment. The tax holiday aims to position India as a global hub for cloud and AI-driven data infrastructure, drawing parallels to the country's success in the IT services sector.
The announcement arrives at a time when India's data center market is experiencing rapid growth, propelled by increasing digitization, data localization trends, and the widespread adoption of AI. Industry estimates suggest that India's installed data center power capacity is expected to surpass 2 GW by 2026, a substantial increase from just over 1 GW currently. Projections indicate a potential fivefold growth to over 8 GW by 2030, attracting capital expenditure exceeding $30 billion. As of 2024, India's data center capacity was at 950 MW, which is expected to be 1800 MW by 2026.
The government's commitment to AI is further demonstrated through the AI Mission 2.0, approved in March 2024 with an outlay of ₹10,371.92 crore over five years. This mission focuses on enhancing infrastructure, promoting skilling, developing datasets, fostering indigenous models, and improving access to GPUs.
To avail the tax holiday, the foreign companies will need to provide services to Indian customers through an Indian reseller entity. The Union Budget 2026 also proposes a safe harbor of 15% on cost in case the company providing data center services from India is a related entity.
India's data center market is currently estimated to be worth $10 billion, with revenue generation of around $1.2 billion in FY24. Real estate firm JLL expects India to add 795 MW of new capacity by 2027, bringing the total capacity to 1.8 GW. In addition, private investments in India's AI infrastructure could double from last year's $70 billion by the end of FY26.
Several major players have already announced significant investments in Indian data centers. Tata Consultancy Services plans to invest $6.5 billion over five years to develop 1 GW of AI-ready data centers. Google, in partnership with the Adani Group, has announced a $15 billion investment to build a 1 GW data center. Microsoft has also committed $17.5 billion to the country, primarily focusing on AI data centers.
This tax holiday and the focus on data infrastructure signify the government's ambition to transform India into a global digital capital, fostering innovation, economic growth, and technological advancement.