India is trying hard to attract global tech companies. In the Union Budget 2026, the government announced a major tax relief for foreign data centre and cloud service providers. The move is aimed at attracting global investment in the cloud computing and artificial intelligence segments.
Under the new rule, foreign companies can run data centres in India and serve customers outside the country without paying Indian taxes on that income. This benefit will apply for many years and is meant to attract large investments from global cloud giants.
Companies like Amazon Web Services, Microsoft Azure, and Google Cloud can now use India as a base to serve global customers. Revenue earned from overseas users will not be taxed in India. However, there are clear conditions in place to protect the local tax system.
If these companies want to serve Indian customers, they must do so through a local Indian entity or reseller. That local unit will continue to pay taxes as per existing rules. This ensures that domestic revenue stays within the tax net.
The government has also introduced a new “safe harbour” rule to reduce long-running tax disputes. It fixes a 15 percent operating margin for transactions between Indian units and their foreign parent companies. As long as companies follow this margin, tax authorities will not question their calculations. This gives companies more certainty and reduces legal risks.
Industry leaders have welcomed the move, especially the focus on AI and digital services. Supria Dhanda, Co-Founder and Managing Partner at Wyser Capital, said the Union Budget 2026 sends a strong signal about India’s direction.
“The Union Budget 2026 clearly signals India’s strong push on AI and emerging technologies as key drivers of services-led growth and global competitiveness. The focus on technology-led innovation, digital exports, and job creation reflects a clear intent to future-proof the economy. The proposed High-Powered Standing Committee on AI and jobs is a timely step that balances rapid tech adoption with workforce readiness. For the industry, this provides the confidence to accelerate AI adoption, scale digital capabilities, and invest in future-ready talent.
This move has come at a crucial time when demand for data centres has grown rapidly due to artificial intelligence, cloud services, and large-scale computing needs. Traditional data centre hubs like the US, Singapore, and parts of Europe are facing limits on land and power supply. India sees this as an opportunity to step in and provide infrastructure and other benefits.
The country already hosts large data centre investments from Amazon and Microsoft. Google has also announced plans to build a major data centre in Visakhapatnam. The new tax policy is expected to speed up such projects and attract more global players.
But it is important note that the move can’t create massive employment. Data centres require heavy investment in machines, power, and cooling systems, but they do not need large workforces. The impact will be more visible in infrastructure growth and revenue generation than in job creation.
