Budget 2026: Why Union Budget 2026’s data centre tax holiday could redraw India’s digital map

The Union Budget 2026 has laid out an ambitious long-term roadmap for India’s digital infrastructure, with Finance Minister Nirmala Sitharaman announcing a tax holiday for data centres till 2047, a move experts say could unlock $70–100 billion in investments and significantly strengthen India’s global standing in cloud and AI infrastructure.

As outlined in her address to Parliament, the tax holiday will apply to any foreign company that provides cloud services to global customers using data centre services based in India. However, such companies will be required to serve Indian customers through an Indian reseller entity. The Budget also introduces a 15% safe harbour on costs in cases where data centre services are provided by a related entity.

The twin measures are aimed at providing policy certainty and cost predictability -- two long-standing challenges for capital-intensive digital infrastructure projects -- and are expected to attract global cloud players to set up large-scale operations in India.

“Cloud, AI and data centre infrastructure require long-term, capital-intensive investments, and policy stability of this nature enables players to plan, invest and scale with a long-term horizon,” Raju Vegesna, Chairman & Managing Director, Sify Technologies Ltd, told Business Today.

India’s data centre capacity has already crossed 1.4 GW and is projected to grow at over 20% annually. Allowing global cloud providers to serve international markets directly from Indian facilities could act as a major investment catalyst, especially as demand for AI-driven computing surges worldwide.

According to Narendra Sen, Founder, RackBank Data Centers, an AI infrastructure company, “the 20-year tax holiday and 15% safe harbor are not just financial incentives; they are a clear signal of long-term policy stability, addressing the historic challenge of cost predictability in capital-intensive infrastructure. As a result, India’s data centre capacity has the potential to touch 10 GW and attract $70-100 billion in investments.”

“Complementing this, the hardware sector too will see investments of about $400 billion over the next five years,” Sen adds.

The announcements underscore the government’s recognition of AI and digital infrastructure as core drivers of economic competitiveness. As per Jaspreet Bindra, Founder of AI & Beyond, strengthening data centre infrastructure will be critical to supporting large-scale AI workloads and enterprise adoption.

Vegesna concludes that the Budget move significantly enhances India’s appeal as a global destination for data centres, cloud and AI infrastructure. It supports cost-efficient capacity expansion, deeper engagement with hyperscalers, and faster cloud and AI adoption by enterprises. Over time, he says, it could help India transition from being merely a data centre destination to becoming a global hub for cloud exports and AI-driven services.