Budget paves the road for stronger data centre infra

THE ECONOMIC SURVEY for 2025-26 noted that if the country is to sustain its competitive edge in IT, a comprehensive evolution is necessary, one that takes full advantage of the potential embedded in AI development and deployment.

- MUKESH BUTANI

In line with this need, the Union Budget for 2026-27 has announced a 20-year carveout for foreign cloud companies that use data centres located in India. This is a huge development, because it removes a major ambiguity for foreign companies.

Earlier, foreign enterprises availing of services could create a taxable presence in India. Other jurisdictions offer clearer rules, but India did not. This made foreign players cautious to commit FDI. The Budget for 2026-27 is an attempt to clarify the law. The only condition is that any revenue earned from Indian users must be routed through an Indian reseller entity.

The Budget has also introduced a 15% safe-harbour margin on costs for foreign investors setting up data centres in India. This provides greater predictability and helps companies plan transfer pricing situations for related-party transactions better.