Budget 2026: Tax Holiday Until 2047

Union Finance Minister Nirmala Sitharaman announced a long-term tax incentive in the Union Budget 2026, offering a tax holiday until 2047 for select foreign companies. The move signals a strategic push to strengthen India’s digital infrastructure and position the country as a global hub for cloud computing and data services.

What Is a Tax Holiday?

A tax holiday is a policy instrument under which eligible companies are exempted from paying specified taxes for a defined period. Governments use tax holidays to attract foreign investment, lower project start-up costs, and encourage activity in priority sectors. Such incentives are typically targeted at capital-intensive industries where long gestation periods and high upfront costs can deter investment.

Tax Holiday for Global Cloud Service Providers

In her Budget speech, Sitharaman proposed a tax holiday until 2047 for any foreign company that provides cloud services to customers globally using data centres located in India. The incentive is aimed at accelerating investments in large-scale data centres, which are seen as critical infrastructure for cloud computing, artificial intelligence, and digital public services. By offering long-term tax certainty, the government seeks to attract global technology majors to base their data centre operations in India.

Conditions and Policy Safeguards

The tax holiday will be available subject to conditions. Foreign cloud service providers must serve Indian customers through an Indian reseller entity, ensuring domestic participation in the value chain. The government has positioned this requirement as a way to balance global investment with local ecosystem development, including employment generation and knowledge transfer.

Important Facts for Exams

• A tax holiday is a temporary exemption from certain taxes to promote investment.
• Budget 2026 offers a tax holiday till 2047 for foreign cloud service providers using Indian data centres.
• Eligibility requires routing Indian customers through an Indian reseller entity.
• Data centres are classified as critical digital infrastructure.

Broader IT and Investment Measures

Alongside the tax holiday, the Budget unified software development, IT-enabled services, knowledge process outsourcing, and contract R&D under a single category called “Information Technology Services.” A common safe harbour margin of 15.5 per cent was announced for all IT services, with the eligibility threshold raised from ₹300 crore to ₹2,000 crore and approvals shifted to an automated system. Additional measures include faster processing of Advanced Pricing Agreements and extensions of modified return facilities, reinforcing India’s bid to remain a preferred destination for global digital and technology investment.