Verdict: The Taxation and Other Laws (Amendment) Bill, 2026 — introduced in the Lok Sabha on August 4, 2026 — removes the two biggest bureaucratic bottlenecks from India's existing cloud tax holiday: the requirement that both the foreign cloud company and the Indian data centre be individually notified by the government. The tax exemption itself (available until March 31, 2047) hasn't changed. What changed is the eligibility path — shifting from an approval-based model to a condition-based framework, and allowing leased data centres to qualify alongside owned ones. For foreign cloud and AI infrastructure providers, this means meaningfully faster access to a market expected to grow from 1.5 GW of operational capacity in 2025 to 12 GW by 2030.
Last verified: 2026-08-07
- Tax holiday for eligible foreign cloud companies using Indian data centres: available until March 31, 2047
- Bill introduced: August 4, 2026, Lok Sabha, by Finance Minister Nirmala Sitharaman
- Key change: removes individual government notification requirements for both foreign companies and data centres
- Leased data centres now qualify alongside owned facilities
- Indian data centre operators do NOT receive a tax break — they get easier access to global customers
- Nasscom welcomed the Bill as "a positive step for the industry"
- Volatile facts: This Bill is still before Parliament; final conditions depend on subordinate rules not yet published
What was the original cloud tax holiday from Budget 2026?
In February 2026, Finance Minister Nirmala Sitharaman announced a tax holiday until March 31, 2047 for foreign companies providing cloud services globally using data centre services from India. The exemption, codified under Schedule IV (Entry 13C) of the Income-tax Act, 2025, shields eligible foreign cloud companies from Indian income tax on income that accrues or arises in India — or is deemed to accrue or arise — through procuring data centre services from a "specified data centre" in India (PIB Backgrounder, Feb 14, 2026).
Without this exemption, a foreign cloud company using Indian data centre infrastructure could face a maximum effective corporate tax rate of approximately 38.22% on India-attributable income, since the presence of a data centre in India could constitute a permanent establishment (PE) or business connection (BC) under Indian tax law (Norton Rose Fulbright analysis).
The original framework had four cumulative conditions:
- The foreign company must be individually notified by the Central Government
- The data centre must be notified by the Ministry of Electronics and IT (MeitY) under an approved scheme
- The foreign company must not own or operate any physical infrastructure of the data centre
- All sales to Indian customers must go through an Indian reseller entity (which remains fully taxed in India)
A 15% safe harbour margin on cost was also introduced for related-party data centre service transactions, reducing transfer pricing disputes (ELP Law analysis, Feb 2026).
What does the August 2026 Amendment Bill actually change?
The Taxation and Other Laws (Amendment) Bill, 2026 makes four specific changes to the data centre tax exemption framework (Taxguru FAQs on the Amendment Bill):
1. Removes the foreign company notification requirement. Foreign cloud companies no longer need to wait for individual government notification to qualify. Eligibility now depends on whether the company meets statutory conditions prescribed under the law.
2. Removes the data centre notification requirement. Indian data centres no longer need to be individually notified by MeitY. The "approved scheme" notification layer is gone.
3. Allows leased data centres. Previously, only data centres owned and operated by an Indian company qualified. The Bill extends eligibility to data centres leased and operated by an Indian company, subject to prescribed conditions. This matters because many data centre operators use leased premises — particularly when entering new markets or expanding capacity (DQ India, Aug 4, 2026).
4. Shifts to prescribed conditions. Both the foreign company and the data centre operator will furnish information in a form and manner prescribed by Rules, rather than requiring case-specific approval. The government considers this sufficient for the exemption to operate (PRS Legislative Research summary).
In short: the tax break itself is unchanged. What changed is the on-ramp — from approval-based to condition-based.
Who actually benefits from these changes?
The amendment creates four distinct beneficiary categories:
Foreign cloud service providers
AWS, Microsoft Azure, Google Cloud, and other global cloud providers get a clearer, faster path to using Indian data centre infrastructure without triggering permanent establishment tax exposure. Under the original framework, tax certainty depended on whether a specific corporate entity was named in a government notification — a problem for multinational groups that use multiple entities, resellers, and infrastructure partners (NationPress, Aug 4, 2026).
Global Capability Centres (GCCs)
Multinational groups running GCC operations in India often distribute cloud procurement, technology operations, and customer contracts across several group entities. Removing the entity-specific notification means the tax treatment no longer depends on which group entity signs a particular infrastructure or service agreement. The relevant test is whether the arrangement satisfies the statutory conditions (DQ India, Aug 4, 2026).
Indian data centre operators
Indian operators like Yotta, CtrlS, Nxtra by Airtel, AdaniConneX, and NTT DATA do not get a tax break from this Bill. Their income from providing data centre services remains fully subject to Indian taxation. What they get is easier access to foreign cloud customers — less paperwork per onboarding, a broader definition of qualifying facilities, and the ability to use leased infrastructure while remaining eligible partners in the foreign-facing chain (NDTV Profit, Aug 2026).
Smaller and leased-facility operators
Recognising leased facilities opens the door for smaller operators who lease rather than own their data centre space. Under the original framework, only facilities directly owned by an Indian data centre company could qualify — potentially excluding legitimate operating models in a market where leased arrangements are common (DQ India, Aug 4, 2026).
| Beneficiary | Direct tax break? | What they get | Key change enabling it |
|---|---|---|---|
| Foreign cloud providers | Yes (income exemption to 2047) | Faster, more predictable eligibility | Notification requirement removed |
| GCCs / multinational groups | Yes (if conditions met) | Tax certainty across group entities | Entity-specific approval eliminated |
| Indian DC operators | No | Easier access to foreign customers, less admin | DC notification requirement removed |
| Smaller / leased-facility operators | No (but indirect benefit) | Can join the qualifying chain | Leased model recognised |
How does this fit into India's broader AI infrastructure strategy?
The 2047 tax holiday and its subsequent simplification are pieces of a larger push to position India as a global cloud and AI infrastructure hub. The context:
- India's data centre capacity stood at approximately 1.5 GW in 2025, making it the second-largest operational data centre market in Asia-Pacific after Mainland China (Blackridge Research, Q1 2026).
- Wood Mackenzie forecasts India's operational data centre capacity will reach 12 GW by 2030 — a CAGR of approximately 40% — with AI-dedicated capacity expanding from 275 MW to 6,546 MW (Wood Mackenzie, 2026).
- India generates close to 20% of the world's data but hosts only about 3% of global data centre capacity, according to data cited in Budget 2026 coverage (Angel One, Feb 1, 2026).
- Major investment commitments include Microsoft's $17.5 billion pledge for Indian data centre projects, AWS's $7 billion Hyderabad expansion over 14 years, Google's $15 billion plan for a 1 GW campus in Andhra Pradesh, and Adani Group's $100 billion commitment to renewable-powered hyperscale AI data centres by 2035 (Blackridge Research).
- The India AI Mission received approximately INR 10 billion (US$109.2 million) allocated for FY 2026-27 against a total outlay of INR 103.72 billion (US$1.13 billion) notified in March 2024 (India Briefing, Feb 2026).
For a deeper look at India's semiconductor and AI infrastructure positioning, see our analysis of India's semiconductor strategy and the ₹1.27 lakh crore bet and how Tamil Nadu's $1.5 trillion AI push is building regional AI infrastructure.
What did Nasscom say about the Amendment Bill?
Nasscom welcomed the Bill on August 4, 2026, calling it "a positive step for the industry" in a statement posted on LinkedIn. The industry body's focus was not merely on the tax exemption itself, but on how companies would qualify for it (DQ India, Aug 4, 2026).
Nasscom's key positions:
- The shift from approval-based to condition-based regime reduces "avoidable burden on data centre facilities" and makes Indian-operated infrastructure easier for global customers to use
- The framework should remain a tax certainty enabler, not become an "approval-heavy scheme" or a vehicle to impose wider investment, capacity, or sourcing conditions unrelated to the tax question
- The recognition of leased facilities is important because "data centre businesses do not always own every building, facility, or element of infrastructure through which they provide services"
Nasscom also cautioned that while the framework looks positive on paper, the "devil will be in the subordinate legislation" — the detailed rules and conditions that the government will prescribe (NationPress, Aug 4, 2026).
What doesn't change: the Indian reseller requirement
A critical condition that the Amendment Bill does not touch is the mandatory Indian reseller requirement. Foreign cloud companies must still route all sales to customers located in India through an Indian reseller entity. That reseller's domestic income remains fully subject to Indian taxation (Taxguru, Feb 2026).
This means the tax holiday is not a blanket exemption for all India-related cloud revenue. It specifically exempts income from global cloud operations that happen to use Indian data centre infrastructure. Revenue from serving Indian customers flows through the Indian reseller and is taxed normally.
This architecture addresses a structural concern: foreign cloud companies were hesitant to use Indian data centres because the presence of infrastructure in India could create a permanent establishment, potentially exposing a wider share of their international income to Indian taxation. The holiday ring-fences that risk — but only for the global operations slice, not domestic sales (Candour Legal analysis).
What this means for you
For cloud and AI infrastructure buyers in India: Expect more hyperscale capacity to come online faster. The removal of notification requirements reduces the time from "deciding to use India" to "actually serving customers from India." AWS, Azure, and Google Cloud regions in India are likely to expand more aggressively, which could put downward pressure on cloud pricing for Indian enterprises.
For foreign cloud and SaaS companies: If you've been evaluating India as a data hosting destination but were deterred by permanent establishment tax risk, the path is now clearer. You no longer need to wait for government notification — you need to meet the statutory conditions (once the detailed rules are published). The 15% safe harbour for related-party data centre services gives you transfer pricing certainty.
For Indian data centre operators and startups: You're not getting a tax break — but you're getting a lower-friction way to attract foreign cloud customers. Smaller operators with leased facilities can now participate in the qualifying chain. Nasscom's caution about the rules watch means you should monitor the subordinate legislation closely.
For investors and market watchers: India's data centre market was valued at approximately USD 9.79 billion in 2025 and is projected to reach USD 21.03 billion by 2031 (Arizton, Jan 2026). This Bill, if passed, accelerates the demand side of that equation. For context on how AI infrastructure spending is reshaping the broader tech economy, our analysis of Big Tech's $750 billion AI capex depreciation risk and Amazon's $3 trillion milestone amid AI capex explores the investment side. And for how India's IT sector is absorbing these shifts, see our coverage of AI deflation reshaping India's $315 billion IT industry and India's GCC hiring holding at 200,000 for FY27.
What are the risks and open questions?
The Bill is still before Parliament. Three key uncertainties remain:
1. The prescribed conditions. The Bill states that data centres "shall fulfil such conditions as may be prescribed" — meaning the actual rules will come later through subordinate legislation. Nasscom has explicitly warned that these rules should not become "a route to impose wider investment, capacity, or sourcing conditions unrelated to the tax question." If the conditions turn out to be heavy, the simplification could be undone (NationPress, Aug 4, 2026).
2. Indian operator incentives. The Bill makes India more attractive for foreign cloud companies, but it does not directly incentivise Indian data centre champions to scale. The question of whether India is primarily building a home for global cloud companies — or creating enough incentives for Indian operators to scale alongside them — remains open.
3. Implementation timeline. The original Finance Act, 2026 provisions were not fully operational because the subordinate legislation (notification criteria) was not yet in place (Norton Rose Fulbright, Feb 2026). The Amendment Bill removes the notification bottleneck, but the Rules prescribing the new conditions must still be drafted and notified.
FAQ
Q: What is the Taxation and Other Laws (Amendment) Bill, 2026? A: It is a Bill introduced in the Lok Sabha on August 4, 2026 by Finance Minister Nirmala Sitharaman. It amends the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007. Among other things, it simplifies the eligibility framework for foreign cloud companies claiming a tax exemption on income from using Indian data centres (PRS Legislative Research).
Q: Does the Amendment Bill extend or change the 2047 tax holiday? A: No. The tax holiday period (until March 31, 2047) is unchanged. The Bill changes how companies qualify — removing the requirement for individual government notification of both the foreign company and the data centre, and allowing leased facilities to qualify (Taxguru FAQs).
Q: Do Indian data centre companies get a tax break from this Bill? A: No. The exemption applies only to eligible foreign companies procuring data centre services from India. Income earned by Indian data centre operators remains subject to normal Indian taxation. What Indian operators get is easier access to foreign cloud customers and less administrative burden per onboarding (DQ India, Aug 4, 2026).
Q: Can leased data centres now qualify under the exemption framework? A: Yes. The Bill extends the exemption to data centres leased and operated by an Indian company, not just those owned and operated. This recognises that many operators use leased premises, particularly when entering new markets or expanding capacity (PRS Legislative Research).
Q: What is the 15% safe harbour margin? A: When data centre services in India are provided to a related foreign company (an associated enterprise providing cloud services), a 15% safe harbour margin on cost applies for determining the arm's length price. This reduces transfer pricing disputes between the Indian data centre operator and its foreign group company (PIB Backgrounder, Feb 14, 2026).
Q: Is the Bill already law? A: No. The Bill was introduced in the Lok Sabha on August 4, 2026 and is still before Parliament. The provisions remain proposals until the Bill completes the parliamentary process. Final impact will also depend on detailed conditions, rules, and implementation guidance issued subsequently (NDTV Profit).
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