New Delhi, February 4: Following the announcement of tax holidays for data and cloud center companies in the central budget, sources from the Finance Ministry stated on Wednesday that foreign companies must meet four essential conditions to qualify for this tax exemption.
According to the sources, this exemption will be available from the fiscal year 2026-27 to 2046-47 for foreign companies providing cloud services globally, including in India.
To be eligible for the exemption, foreign companies must fulfill four mandatory criteria. Firstly, the foreign company must be notified, and the data center company providing services in India must be an Indian entity.
Other requirements include that the data center must be notified by the Ministry of Electronics and Information Technology, and the services offered to Indian users by the foreign company must be provided through an Indian reseller entity.
Sources indicated that this exemption provides certainty to foreign companies engaged in providing cloud services that utilize data centers located in India. These companies will not face any risk of taxation on their global income in India.
However, income generated from domestic economic activities, such as data center services provided to global entities by resident data centers and cloud services sold to Indian customers by resident reseller entities, will remain taxable like any other domestic company.
If an Indian data center is an affiliate of a foreign company (cost-plus center), a secure tax margin of 15 percent has been granted.
Furthermore, the treatment of foreign cloud service units will remain consistent, whether the data center is Indian-owned or a subsidiary of a global entity, ensuring equal opportunities for all.
Indian data centers can now confidently offer their services to global cloud entities, which will not face any tax risks due to their use of Indian data centers.
This initiative aims to develop critical infrastructure and promote investment in data centers.