Tax holiday till 2047, Budget 2026 proposal makes India attractive option for AI data centers from Google and others
Budget 2026 offers tax holidays till 2047 for foreign cloud companies using India-based data centres, as the government looks to attract global tech giants while meeting growing local AI demand.
India does not yet have a big, globally known AI model that can compete with the likes of OpenAI or Google, but the Union Budget 2026 shows where the government wants to place its bets. Instead of starting with AI models, the focus is on the massive infrastructure running them, which is the data center. Presenting the budget, Finance Minister Nirmala Sitharaman announced a tax holiday till 2047 for foreign companies that provide cloud services to customers around the world using data center facilities located in India.
“Recognizing the need to enable critical infrastructure and boost investment in data centres, I propose to provide tax holidays until 2047,” she said in her speech.
The proposal is likely to interest global technology companies like Google, Amazon and Microsoft, which rely on vast computing capacity to run AI and cloud services. The government has added a local condition to the scheme that these companies will have to serve Indian customers through an Indian reseller entity.
The proposal could make India an even more attractive destination for global technology companies that are already committing huge sums to the country. In October last year, Google had said it would invest $15 billion over five years to set up an AI-focused data center in Andhra Pradesh. The facility, planned in the port city of Visakhapatnam, will start with an initial capacity of 1 GW. Google Cloud CEO Thomas Kurian described the project as the company’s largest AI hub outside the United States.
To clarify the tax structure, the Budget also proposes a safe harbor of 15 per cent on costs where data center services are provided from India by the concerned entity. This is expected to reduce disputes and make long-term planning easier for multinational companies.
While India’s own AI models are still being built, the demand for AI services within the country is growing rapidly. Now by bringing data centers to India, the government is trying to ensure that the computing power required for this demand is available close to home.
The budget also announced a safe harbor for non-residents using bonded warehouses for electronic components, with profits capped at 2 per cent of the invoice value, providing another incentive for global tech companies to expand their presence in India.