Budget 2026: Industry hails data centre tax holiday as move to make India 'digital backbone for the world'

On February 1, Finance Minister Nirmala Sitharaman unveiled a significant tax incentive plan aimed at attracting international cloud service providers to establish data centers in India. This initiative, part of the Union Budget, is expected to enhance the country’s digital infrastructure and position India as a pivotal player in global data management. Sitharaman announced a tax holiday extending until 2047 for foreign companies that utilize data center services in India to serve their global clientele. She also introduced an additional incentive for multinational corporations, offering a safe harbor of 15% on costs for related entities providing data center services from India. This strategic move comes at a time when India is gearing up to bolster its domestic digital infrastructure, driven by increasing demands from artificial intelligence (AI) applications, data localization regulations, and the expansion plans of major cloud service providers. Abhinav Johri, a partner at EY India, emphasized that this tax holiday transcends mere financial incentives, positioning India as a central hub for global cloud infrastructure. He noted that the policy not only stimulates investments in data centers but also strengthens India's digital sovereignty and energizes its technology ecosystem, including startups and AI firms. Johri highlighted that the long-term effects could significantly enhance job creation, innovation, and India's competitiveness on a global scale. The push for data centers aligns with a broader technological and manufacturing strategy outlined in the Budget, which includes enhanced funding for semiconductor initiatives and electronics manufacturing. The Electronics Component Manufacturing Scheme (ECMS) allocation was increased to ₹40,000 crore, reflecting the government's commitment to elevate component-level manufacturing alongside finished electronics. Ashok Chandak, president of the India Electronics and Semiconductor Association, remarked that the Budget represents a continuation of the momentum established under previous initiatives, marking India’s transformation into a credible destination for electronics and semiconductor manufacturing. AI startups view the new incentives as a catalyst for developing a sovereign model and transforming the workforce. Ganesh Gopalan, co-founder and CEO of Gnani.ai, described the Union Budget 2026 as a timely framework that underscores the importance of AI in enhancing the Indian economy. He emphasized the need for large-scale AI model training and infrastructure development, which the tax benefits will facilitate. Additionally, the move is poised to address the current imbalance, as India generates about 20% of the world's data but only hosts around 3% of its data center capacity. Amit Sarin, managing director of Anant Raj Limited, expressed optimism that these incentives would improve the financial viability of large-scale projects, enhancing India's competitiveness in the digital space. Market analysts predict that as AI adoption accelerates, demand for data center capacity will continue to outstrip supply, with India poised to become a crucial destination for hyperscalers looking to expand in the Asia-Pacific and Middle East regions. This Budget announcement is seen as a strategic step toward long-term planning and investment for global cloud players, ensuring that India remains at the forefront of the digital economy.