In a landmark move to position India as the world’s digital warehouse, Finance Minister Nirmala Sitharaman announced a sweeping tax holiday until 2047 for foreign companies providing cloud services via Indian data centers.
The announcement, made during the Union Budget 2026 on February 1, 2026, aims to bridge the gap between India’s data generation (20% of the world) and its hosting capacity (currently only 3%).
1. The “Cloud Hub” Incentive
The core of the proposal is a total tax exemption on profits earned from global customers, provided the physical infrastructure remains in India.
- Target Audience: Foreign “hyperscalers” (like AWS, Google Cloud, and Microsoft Azure) and global cloud service providers.
- The Benefit: Zero corporate tax on revenue generated from global clients using India-based servers until the year 2047.
- The “Reseller” Clause: To qualify for the holiday, companies must serve their Indian customers through a designated Indian reseller entity. This ensures that while global business is attracted, the domestic market structure is also strengthened.
- Safe Harbour: A 15% safe harbour on cost has been proposed for instances where the company providing data center services from India is a related entity, significantly reducing transfer pricing disputes and providing tax certainty.
2. Why the 2047 Timeline?
The year 2047 marks the centenary of India’s independence (Viksit Bharat 2047). By aligning the tax holiday with this milestone, the government is providing 21 years of policy certainty—a critical factor for the capital-intensive data center industry.
3. Market & Economic Impact
The announcement triggered an immediate rally in the “digital infrastructure” basket during the special Sunday budget trading session:
| Sector / Company | Impact / Stock Reaction |
| E2E Networks | Surged nearly 7% to ₹2,269 as a key local cloud provider. |
| Anant Raj Industries | Rose over 5% to ₹530 due to its data center real estate portfolio. |
| Netweb Technologies | Gained 2.2% as a provider of server and storage solutions. |
| IT Services (TCS, Infosys) | Gained 2–4% on expectations of increased cloud migration projects. |
Key Insight: India’s data center capacity is projected to reach 14 GW by 2035. This tax holiday is expected to pull in a significant portion of the $70 billion investment required from global hyperscalers.
4. Supporting Initiatives in Budget 2026
The data center push is supported by several other “tech-first” announcements:
- India Semiconductor Mission 2.0: Deepening the hardware chain to ensure chips for these servers are eventually “Made in India.”
- Electronics Components (ECMS): Outlay increased to ₹40,000 crore to boost the manufacturing of server components and networking gear.
- IndiaAI Compute: Focus on building the heavy infrastructure (data centers) required to run sovereign AI models.
Conclusion: Data as the New Oil
By offering a tax-free ride until 2047, India is essentially inviting the world to store and process its data on Indian soil. While the STT hike on the same day may have unsettled short-term traders, this long-term fiscal commitment cements India’s status as a global technology powerhouse. For global giants like Google (which recently committed $15 billion for a Vizag data center), the message is clear: the cost of not being in India just became much higher.
