New Delhi, Feb 4 (PTI) – A long-term tax holiday extended to global cloud companies utilizing Indian data centers has the potential to transform India into a global hub for Artificial Intelligence (AI) and related services within the next few years. This is according to Jatin Dalal, CFO of Cognizant, who commented on the recent Union Budget announcement.
The Union Budget 2026-27, presented on Sunday, proposed a tax holiday until 2047 for foreign companies delivering cloud services to global clients using data centers located within India. This initiative signals the government's strong push to establish India as a major center for AI and digital infrastructure. The aim is to position India not only as a consumer of cloud and AI services but also as a thriving base for the world's digital backbone.
Finance Minister Nirmala Sitharaman, while presenting the budget, stated that this tax holiday is aimed at enabling critical infrastructure and boosting investment in data centers. The proposal includes a 15% safe harbor for related-party data center services, which has garnered strong support from the industry, as it is expected to boost data sovereignty and large-scale AI investments.
To be eligible for the tax holiday, foreign companies must provide services to Indian customers through an Indian reseller entity. This condition ensures that while foreign companies benefit from the tax incentives for their global operations, the domestic market is served through local entities, ensuring taxation within India.
The tax exemption eliminates about 35% of the corporate income tax burden, enhancing India's cost competitiveness compared to other hubs like Singapore. The initiative has already attracted investment commitments worth billions of dollars from major players like Microsoft and Google. With advantages like readily available land, competitive electricity prices, and a rapidly growing renewable energy sector, India's data center capacity is expected to double in the next five years. The government aims to compete for the status of a global computing power center through these systematic policy measures.
The move is expected to significantly reduce the cost of operations at scale, de-risk long-term capital commitments, and strengthen India's position in global technology supply chains. Experts believe it will also catalyze a new wave of high-quality foreign direct investment (FDI) into data infrastructure and related areas.
According to D.D. Mishra, VP Analyst at Gartner, the 20-year tax holiday acknowledges data as the new sovereign currency and is a massive tailwind for AI-enabled data centers. However, Mishra also noted that its success hinges on the ability to scale industrial power infrastructure and cooling requirements.
Avinash Vashistha, Chairman & CEO of Tholons and former Chairman and CEO of Accenture India, stated that the proposal creates a powerful anchor incentive by offering a tax holiday until 2047 for foreign companies establishing data centers in India, along with a 15% safe harbor on cost for companies providing data services from India to a related entity.
Union Minister of Electronics and IT, Ashwini Vaishnaw, noted that investments of around $70 billion are already underway in India, with announcements of approximately $90 billion in AI data centers. Vaishnaw added that the long-term policy framework for data centers up to 2047 positions India among the leading global destinations for AI and cloud infrastructure.