No tax risk for foreign companies setting up data centres in India: FinMin sources

The Budget proposal of a 20-year tax holiday to foreign companies which provide cloud services globally will be available only to those which have set up a MeitY-notified data centre in India, and there will not be any risk for such overseas firms of their global income being taxed in India on this account, sources said on Wednesday.

Finance Ministry sources also said that the Budget announcement would also give certainty to foreign companies that are in the business of providing cloud services and procurement services from a data centre in India.

“Now Indian data centres can confidently offer their services to such global cloud entities, without these global entities perceiving any tax risk if they use Indian data centres,” sources added.

Finance Minister Nirmala Sitharaman, in her 2026-27 Budget, had proposed to provide a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity.The Budget proposal is aimed at boosting investment in data centres.

“There will not be any risk for such foreign companies of their global income being taxed in India on this account,” finance ministry sources said.Explaining the proposal, Finance Ministry sources said that to avail the tax holiday, a foreign company has to satisfy four essential conditions.

The first condition is that the foreign company is notified. As per the definition in the Companies Act, foreign companies are incorporated outside India, and they have a place of business in India. These companies are set up with foreign capital. Between 2020 and 2024, about 350 foreign companies across various sectors have registered themselves with the Ministry of Corporate Affairs.