Who Benefits From India’s Long-Term Tax Holiday Till March 2047?

The Union Budget 2026 has introduced a long-term tax holiday for foreign companies that provide cloud services using Indian data centres. Announced by Finance Minister Nirmala Sitharaman, the exemption applies from FY 2026–27 till March 2047 and has sparked wide debate on whether the move favours global tech giants at the cost of India’s tax revenues.

At first glance, the beneficiaries appear obvious: global cloud majors such as Amazon Web Services, Microsoft, Google and Meta. These firms had long been concerned that building large-scale infrastructure in India could expose them to “permanent establishment” risks, potentially allowing India to tax their global cloud income. The tax holiday directly addresses that concern by exempting specific income earned through Indian data centres.

However, a closer reading of the policy shows that the gains are more widely distributed across India’s digital infrastructure ecosystem.

Indian data centres emerge as key winners

The exemption applies only if cloud services are procured from data centres that are owned and operated by Indian companies and notified under a government-approved scheme. This condition effectively anchors large, irreversible investments—land, power infrastructure, cooling systems and buildings—within India.

As foreign hyperscalers expand their presence, their improved post-tax returns make them more willing to pay for high-quality Indian capacity. This strengthens the pricing power of domestic data centre operators such as AdaniConneX, Reliance-backed platforms, Tata group companies, Airtel’s Nxtra, Yotta Infrastructure, CtrlS and Sify. While these firms continue to pay corporate tax as usual, higher lease rates and long-term contracts improve their overall profitability and scale.

Resellers and Indian intermediaries benefit

The Budget also requires that sales to Indian customers flow through Indian reseller entities. These include Indian subsidiaries of global cloud firms and domestic IT service providers. A 15 per cent safe harbour margin on costs ensures predictable, taxable profits for these entities in India, supporting job creation and local value addition.

Cloud customers gain from competition

Indian startups, small businesses and large enterprises are indirect beneficiaries. As competition between global cloud providers intensifies and capacity within India expands, part of the benefit is expected to flow through as more competitive pricing, better service quality and improved access to advanced cloud and AI infrastructure hosted within the country.

A strategic trade-off

Rather than a simple tax giveaway, the policy represents a strategic trade-off. India gives up a potential and contested tax claim on foreign cloud income in return for long-term infrastructure investment, domestic ownership of critical assets and stronger digital sovereignty. The approach aligns with India’s broader push on data localisation and building a globally competitive cloud and AI ecosystem.

In short, the winners are many: foreign cloud providers gain tax certainty, Indian data centre operators gain scale and pricing power, resellers gain stable margins, and cloud customers benefit from deeper competition. The tax holiday is as much about anchoring hard assets in India as it is about welcoming global cloud players.