Union Budget 2026 has redrawn the economic map for data centres and cloud infrastructure, offering long-term tax certainty and transfer pricing relief aimed at encouraging global providers to process data within the country.
The centrepiece is a tax holiday for foreign companies setting up data centres in India, running until 2047, alongside a 15 percent safe harbour on costs for related-party data services provided from India. Together, these measures are intended to reduce friction for multinational cloud providers grappling with India’s evolving data protection regime and localisation expectations.
Industry executives say the policy shift removes one of the biggest commercial hurdles to onshore data processing, particularly for companies subject to India’s Digital Personal Data Protection Act. Until now, many enterprises have struggled to balance global cloud architectures with local compliance requirements, often facing higher costs and legal uncertainty.
“The data centre tax holiday till 2047 is a watershed moment for India’s digital economy,” said Shashank Karincheti, co-founder and chief product officer at privacy technology firm Redacto.ai.
He said the incentives effectively address the trade-off between global-scale infrastructure and localisation rules, making compliance with the data protection law more practical for enterprises operating at scale.
India’s data protection framework requires organisations to ensure lawful consent, safeguard personal data and provide enforceable rights to individuals, known as data principals.
While the law allows cross-border data transfers in certain cases, the absence of clarity around enforcement and the cost of localisation have slowed adoption of fully compliant operating models.
Karincheti said greater onshore processing could make consent management enforceable and data principal rights actionable, while reducing complications linked to overseas transfers. However, he warned that localisation alone would not guarantee compliance.
“The real work begins after data lands in India,” he said, pointing to the need for robust consent systems, third-party risk governance and accountability once enforcement intensifies.
The budget’s measures come as India positions itself as a regional hub for cloud and data services, competing with established markets in Southeast Asia and the Middle East. For the business process management and outsourcing sector, long-term tax certainty could support expansion beyond major cities and bring more global workloads to domestic delivery centres.
Budget 2026 pushes India as global hub for cloud and data services
“Budget 2026 clearly positions India as a global hub for cloud and data services,” said Abhinav Arora, CEO and managing director of EOSGlobe. He said predictable tax treatment, a practical safe harbour framework and requirements for local reseller participation could strengthen India’s appeal to multinational clients and help spread growth to smaller cities with skilled talent pools.
Infrastructure developers see the policy shift as a signal to global capital that India is serious about scaling its data centre capacity. Narendra Sen, founder and CEO of RackBank Data Centers, said the timing was critical as investors compare India with other emerging markets for digital infrastructure.
India currently accounts for nearly a fifth of the global data economy, Sen said, while the global data centre market is estimated at about 120 gigawatts. Even capturing a small share of incremental demand would require a sharp increase in domestic capacity.
“With deployed capacity still at an early stage, India has the potential to reach nearly 10 GW over the next five years,” Sen said, estimating investments of $70 to $100 billion across data centre infrastructure.
He said the proposed tax holiday improves visibility on returns, making Indian platforms more attractive to infrastructure funds and real estate investors looking for long-term assets.
Cost dynamics also favour India, according to industry estimates. Build costs are around $5 million per megawatt, roughly half the levels seen in some overseas markets, improving project economics.
Developers also point to growing domestic manufacturing capabilities, lower import dependence and expanding renewable energy capacity as structural advantages.
India’s geographic location adds another layer of appeal. Data centres on the east and west coasts can serve South Asia, Southeast Asia, the Middle East and parts of Africa within acceptable latency thresholds, potentially giving operators access to nearly half the world’s population.
For technology services companies, the budget offers clarity on cross-border operating models that have long been a source of transfer pricing disputes. The 15 percent safe harbour on costs for related-party data services is expected to reduce uncertainty and simplify compliance for multinational groups.
“The proposed tax holiday till 2047 provides long-term visibility and confidence for global players evaluating India as a strategic base,” said Umesh Shah, director, Orient Technologies. He said the safe harbour brings clarity to co-provided data services and lowers execution risk for companies scaling cloud-led offerings from India.
Despite the optimism, one executive cautions that policy incentives alone will not determine outcomes. Power availability, land acquisition, grid stability and state-level approvals remain critical variables for data centre projects.
At the same time, regulators are expected to sharpen enforcement of data protection rules, testing whether enterprises have built the operational capabilities needed to comply.
The budget, executives say, creates the economic and infrastructure conditions for onshore data processing, but shifts responsibility to companies to demonstrate credible privacy practices. As enforcement of the data protection law gathers pace, the gap between firms that treat localisation as a compliance checkbox and those that invest in deeper governance may become more visible.
In that sense, the budget marks a turning point rather than an end point. “By reducing tax and pricing uncertainty, it accelerates India’s bid to become a global digital infrastructure hub. Whether that translates into sustainable growth will depend on how effectively companies convert policy support into compliant, resilient operations that can withstand regulatory scrutiny,” said former DG STPI Dr. Omkar Rai, who currently runs, IDEA and STARTUP PURV as founder and chairman.
