When historians look back at Union Budget 2026–27, they may not begin with the headline capex numbers or the fiscal arithmetic. They may begin with a seemingly technical provision—one that extends tax certainty for foreign companies using Indian data centres all the way to 2047.

This was not a tax concession in the ordinary sense.

It was a jurisdictional signal.

For new and existing data-centre, cloud, and AI players, this provision effectively answers a question that has haunted global boards for years:

If we place our core compute workloads in India, will future tax interpretations rewrite our economics?

The answer, delivered with unusual clarity, is: No.

The strategic intent: trust before scale

India is on the cusp of becoming one of the world’s largest hubs for digital infrastructure—driven by AI workloads, sovereign data requirements, global cloud demand, and the sheer economics of power, talent, and land.

Yet until now, one latent risk constrained scale:

the fear that global revenues served from India-based data centres might one day be deemed taxable in India, merely because compute sat on Indian soil.

Budget 2026–27 decisively removed that overhang.

By legislating a long-dated exemption—stretching to 31 March 2047—India has done something rare in tax policy: it has traded short-term revenue ambiguity for long-term credibility.

For digital infrastructure, credibility is everything.

What exactly is exempt—and why it matters

The exemption applies to a foreign company’s income that may accrue or arise in India solely because it procures data centre services from a specified Indian data centre, provided certain conditions are met.

In practical terms, this means:

• Global cloud or AI players can serve customers worldwide from India-based compute
• The mere location of servers, storage, networks, or processing power in India will not trigger Indian taxation on global revenues
• This certainty holds for two full decades—until 2047

For hyperscalers, AI model providers, SaaS majors, and global enterprises running private clouds, this removes the single biggest structural uncertainty in India deployment decisions.

The architecture of the policy: clarity with guardrails

The power of this provision lies not just in the exemption, but in its clean architecture.

1. Conditions for the foreign company

To avail of the exemption, the foreign company must:

Be notified by the Central Government

This ensures the regime is targeted at genuine operating players, not shell structures.

Not own or operate the physical data centre infrastructure

Servers, buildings, power systems, and cooling must belong to the Indian data centre operator.

The foreign company is a consumer of services, not an infrastructure owner.

Route all Indian-customer sales through an Indian reseller entity

This is a masterstroke of policy design.

Global revenues remain protected—but India-facing monetisation is transparently taxed in India through an Indian company.

In one stroke, the law separates:

• Global compute delivery (exempt)
  from
• Domestic market exploitation (taxable in India)

2. Conditions for the data centre

The data centre itself must:

• Be notified under an approved government scheme
• Be recognised by the Ministry of Electronics and Information Technology (MeitY)
• Be owned and operated by an Indian company

This ensures that while compute flows globally, physical sovereignty, operational control, and domestic value creation remain Indian.

It is openness without loss of control.

3. What qualifies as “data centre services”

The definition is deliberately broad, covering the full stack:

• Land and buildings
• Power and cooling infrastructure
• Security systems
• Servers, storage, and networking
• Software platforms
• On-site personnel and operations

This is not a narrow tax carve-out for racks.

It is a recognition of the data centre as a full-fledged industrial ecosystem.

4. Transfer pricing certainty through safe harbour

Where services are provided to an associated enterprise, the policy proposes a safe harbour margin of 15%.

This is critical.

It signals that India does not want:

• Endless benchmarking disputes
• Protracted audits
• Retrospective adjustments

Instead, it offers predictability—something global boards value as highly as tax rates.

Why the 2047 horizon changes everything

The choice of 2047 is not accidental.

It aligns with India’s centenary vision—Viksit Bharat.

But more importantly, it aligns with capital life cycles.

Data centres are:

• Capital intensive
• Long-gestation
• Power and land locked
• Designed for multi-decade utilisation

By matching the tax horizon to the asset horizon, India has made itself investable at scale.

For boards deciding between regions—Southeast Asia, Middle East, Europe, or India—this provision tilts the equation decisively.

What new entrants should do now

For new players evaluating India, the guidance is clear:

• Structure India as a global compute hub, not merely a regional one
• Partner with Indian-owned, MeitY-notified data centre operators
• Design billing so that Indian customers are served through an Indian reseller, while global customers are served directly
• Lock in long-term power, land, and cooling efficiencies with confidence that tax rules will not shift underfoot

India has effectively said: Bring your most valuable workloads. We will not surprise you.

What existing players should reassess

For players already operating in India, this is a moment to:

• Revisit risk models that priced in potential “digital PE” exposure
• Consolidate global workloads into India where economics and latency permit
• Expand capacity knowing that regulatory risk has been materially reduced
• Engage early on notification and compliance to ensure clean qualification under the regime

In many cases, this policy converts India from a supplementary location into a primary compute destination.

Beyond tax: a signal of state maturity

The deeper significance of this move is philosophical.

For decades, emerging markets have competed on incentives.

India is now competing on institutional trust.

This provision says:

• We understand how digital value chains work
• We respect the separation between location of compute and location of value creation
• We are willing to bind ourselves, in law, for 20 years

That is not a developing-market reflex.

That is the reflex of a confident, system-building state.

A quiet turning point

Union Budget 2026–27 will be remembered for many things.

But for the global digital economy, this data centre provision may prove to be its most consequential legacy.

It turns India into:

• A neutral, trusted compute base
• A jurisdiction with long memory and longer horizons
• A place where AI, cloud, and digital infrastructure can scale without fear

In a world where capital is abundant but trust is scarce,

India has chosen—wisely—to legislate trust.

And trust, once made durable, compounds faster than any incentive.

END OF ARTICLE