Foreign Cloud Companies Must Meet 4 Key Conditions to Avail Data Centre Tax Holiday
Finance Ministry clarifies eligibility norms after Budget announcement
New Delhi:
Following the Union Budget’s announcement of a tax holiday for data and cloud centre companies, sources in the Finance Ministry said on Wednesday that foreign companies will have to meet four mandatory conditions to qualify for the benefit. The tax holiday will be available from tax year 2026–27 to 2046–47 and will apply to a foreign company providing cloud services globally, including in India.
According to the sources, the exemption is aimed at providing certainty to foreign cloud service providers that use Indian data centres to deliver services.
Four mandatory conditions for tax holiday
To avail the tax exemption, a foreign cloud company must fulfil the following four conditions:
-
The foreign company must be notified by the government, and the data centre service provider in India must be an Indian company.
-
The data centre must be notified by the Ministry of Electronics and Information Technology (MeiTY).
-
Cloud services to Indian users must be provided through an Indian reseller entity, which should be an Indian company.
-
The foreign company must procure data centre services from India in line with the notified framework.
No tax risk on global income
Finance Ministry sources said the exemption gives certainty to foreign companies engaged in the cloud services business that purchase services from data centres located in India. Such companies will not face the risk of being taxed in India on their global income merely because they use Indian data centres.
However, income arising from domestic economic activities—such as profits earned by an Indian data centre from providing services to a global entity, or income earned by an Indian reseller entity from reselling cloud services to Indian customers—will continue to be taxable in India, like any other domestic company.
Safe harbour and equal treatment
If the Indian data centre is a related entity of the foreign cloud company (operating as a cost-plus centre), a 15 per cent safe harbour margin will apply. The sources also clarified that foreign cloud service entities will be treated equally, regardless of whether the Indian data centre is domestically owned or a subsidiary of a global company.
Boost to data centre investment
The move is aimed at building critical infrastructure and encouraging greater investment in India’s data centre ecosystem. With reduced tax uncertainty, Indian data centres can confidently offer services to global cloud companies, strengthening India’s position as a major hub for digital and cloud infrastructure.
