In Budget 2026, the government has taken a major step toward making India a global hub for AI and cloud infrastructure. Finance Minister Nirmala Sitharaman announced a long-term tax incentive for foreign companies operating data centers in India, signalling a strategic shift toward building the backbone that powers artificial intelligence rather than focusing only on AI models.
In the Union Budget 2026, the government unveiled a major policy move to attract global AI and cloud infrastructure investments into India. Finance Minister Nirmala Sitharaman announced that foreign companies providing global cloud services through data centers located in India will receive a tax holiday until 2047.
The move is aimed at encouraging global tech giants such as Google, Amazon, and Microsoft to expand their data center footprint in India. The government’s strategy focuses on strengthening the infrastructure that powers AI, rather than competing directly in the race to build the world’s largest AI models.
The finance minister stated that tax exemptions will be provided to promote investment in critical digital infrastructure, such as data centers. This tax relief will apply to foreign companies that use India-based data centers to offer cloud services to customers worldwide.
According to the government, a long-term tax holiday will accelerate large-scale investment decisions and help India move closer to becoming a global data center hub, especially as demand for AI computing and cloud services continues to rise.
The proposal is particularly attractive for global technology companies whose businesses rely heavily on large-scale data centers and high-performance computing. Companies like Google, Amazon, and Microsoft operate massive infrastructure to support AI training, cloud platforms, and enterprise services.
The new tax policy gives these companies a strong incentive to expand operations in India. However, the government has introduced a condition: to serve Indian customers, these companies must operate through an Indian reseller entity, ensuring benefits for the local business ecosystem.
To reduce tax disputes and improve transparency, the Budget 2026 also proposes Safe Harbour rules for data center services. Under this framework, a 15% safe harbour margin will be applied to the cost of data center services provided by India-linked entities.
This measure is expected to simplify tax calculations and compliance for multinational companies, enabling more confident long-term planning and investment decisions. A clear tax structure is seen as a key trust-building factor for foreign investors.
While India may not yet be leading the global race to build the largest AI models, the government has chosen to focus on strengthening infrastructure first. Demand for AI-powered services in India is growing rapidly, and running these services requires enormous computing capacity.
Hosting data centers within the country will reduce latency, improve service speeds, and enhance data reliability. The Budget also proposes Safe Harbour benefits for foreign electronic component traders using bonded warehouses, where profits will be capped at 2% of invoice value, offering additional incentives for global tech expansion in India.
Rinchank Tiwari, Founder of Mediatronics Group, said the continuous expansion of the India AI Mission signals a shift from merely adopting AI to establishing AI ownership.
After an allocation of ₹2,000 crore in FY2026, the increased focus in the 2026–27 Budget on compute infrastructure, AI-ready datasets, and indigenous foundation models could prove to be a major game changer. This approach will create a level playing field for startups and enterprises beyond metro cities—including emerging tech hubs like Lucknow—allowing them to develop, train, and deploy AI solutions at scale.