By Utkarsh Trivedi, Partner, Deloitte India and Karan Chheda, Deputy Manager, Deloitte India
Data centres form the backbone of the global digital economy, providing enterprises with secure, large scale infrastructure for data storage, processing, and delivery. While India is one of the world’s largest datagenerating economies—accounting for nearly 20% of global data, it currently hosts only about 3% of global data centre capacity. This imbalance underscores both a competitive gap and a significant growth opportunity.
Over the past few years, India has seen strong investor interest in expanding domestic data centre infrastructure. In 2025 alone, the country added 228 MW of colocation capacity, taking total installed capacity to 1.5 GW across major hubs such as Mumbai, Chennai, Bengaluru, and Delhi. Forecasts indicate that India’s capacity may reach 1.7 GW by the end of 2026, driven by surging demand for cloud services, AI workloads, and digital public infrastructure, according to a recent Cushman & Wakefield report.
India’s regulatory landscape has also evolved over the period in support of this digital transition. The 2018 Srikrishna Committee report on data protection first emphasized the importance of local data storage, prompting early investments into domestic data centres. Subsequent policy interventions strengthened this direction.
In the 2022 Budget Speech, the Hon’ble Finance Minister, Ms. Nirmala Sitharaman, classified data centres and energy storage systems—including gridscale batteries and charging infrastructure—under the harmonized list of “infrastructure,” a move intended to ease access to credit and bring more sectoral investment. More recently, the Digital Personal Data Protection Rules were also introduced detailed compliance requirements on notice obligations, data deletion timelines, data localization norms, and regulatory oversight.
These policy developments dovetail with India’s broader ambition to position itself as a global leader in digital and AIdriven services. Achieving this vision requires worldclass data centre capacity supported by a stable and competitive tax regime—particularly given the crossborder nature of cloud service delivery.
Against this backdrop, the Union Budget 2026 introduced a series of targeted tax incentives aimed at accelerating the growth of India’s data centre ecosystem. Presenting the Budget, the Hon’ble Finance Minister reaffirmed the IT sector’s role as a central pillar of India’s economic advancement.
Budget 2026 builds on this foundation by offering incentives to foreign cloud service providers to operate through Indian data centres. The key features of the proposed amendment include:
1. Tax Holiday for Foreign Cloud Operators – Any foreign company providing cloud services to global customers through specified data centres located in India will be eligible for a tax holiday up to FY 2047—a 21year benefit period. This will help the foreign companies in planning their India business outlook without worrying about any aggressive position to be taken by tax authorities like permanent establishment exposure in India, profit attribution, taxability of income based on nature of income earned from India, etc.
2. Specification of Eligible Data Centres – Eligible Data Centres must be notified by the Indian Government and must be owned and operated by an Indian company.
3. Requirement to Partner with an Indian Reseller – Foreign cloud service providers must supply services to Indian customers through an Indian reseller, ensuring participation by a domestic commercial presence in the value chain.
4. Safe Harbour Margin for Indian Data Centre Entities – A 15% safe harbour margin is proposed for Indian associated enterprises providing data centre services to their foreign affiliates. This provides muchneeded pricing certainty under Indian transfer pricing rules and thereby reducing the litigation.
Following the Budget announcement, the Hon’ble Minister for Information Technology and Electronics, Mr. Ashwini Vaishnaw, stated that India has already secured USD 90 billion in pledged investments for AIrelated digital infrastructure, with USD 70 billion worth of projects actively underway. He also indicated that overall commitments could double by the upcoming AI Impact Summit, potentially pushing total investment towards USD 200 billion as additional global players enter the market.
These amendments are likely to benefit not only cloud storage operators but also industries heavily reliant on intensive computing data servers such as gaming and AI model training. Collectively, the budget proposals signal India’s intention to compete aggressively with established global data hubs by offering longterm tax stability and a conducive investment environment.
By integrating tax incentives, regulatory evolution, and massive capital inflows, India is laying the groundwork for the next generation of AI, data, and technologydriven growth.