The Indian government has proposed amendments to simplify compliance requirements for foreign cloud and technology companies using a data centre in India, making it easier for them to qualify for the tax incentives announced in the Union Budget 2026–27. The proposed changes would allow Indian partners to lease, rather than own, data centre infrastructure, reducing capital requirements and making the framework more accessible for global cloud providers and smaller domestic operators. The move is aimed at accelerating investments in India’s rapidly growing AI and cloud infrastructure ecosystem while strengthening the country’s position as a global data centre hub.
The proposal builds on the government’s earlier decision to offer a tax holiday until 2047 for eligible foreign cloud service providers that use India-based data centres to serve global customers. By easing ownership conditions and providing greater operational flexibility, the government hopes to attract more international investment in digital infrastructure while maintaining safeguards for domestic operations.
Government Proposes Easier Compliance for Foreign Cloud Firms
Under the draft amendments:
- Indian data centre partners will be allowed to lease infrastructure instead of owning it.
- Foreign companies will find it easier to qualify for tax exemptions.
- Lower capital requirements could encourage greater participation from smaller and mid-sized operators.
- The framework is intended to accelerate investments in AI-ready data centres and cloud infrastructure.
Proposal Snapshot
| Item | Details |
|---|---|
| Sector | Cloud services and data centres |
| Proposed Change | Indian partners can lease instead of own data centres |
| Objective | Simplify compliance and attract foreign investment |
| Key Beneficiaries | Global cloud providers and Indian data centre operators |
Builds on the 2047 Tax Holiday
The proposal complements the tax incentive announced in the Union Budget 2026–27.
Under the existing framework:
- Eligible foreign cloud companies serving global customers through India-based data centres can receive a tax holiday until 2047.
- Companies must use notified Indian data centres.
- Services for Indian customers must continue to be provided through an Indian reseller entity.
- Domestic operations remain subject to Indian taxation.
The latest amendment focuses on making it easier for companies to comply with these eligibility conditions rather than changing the tax incentive itself.
Existing vs Proposed Framework
| Earlier Requirement | Proposed Change |
|---|---|
| Indian partner generally expected to own data centre infrastructure | Leasing of data centre infrastructure permitted |
| Higher upfront capital commitment | Lower capital requirement |
| More restrictive compliance | Greater operational flexibility |
Why the Change Matters
The amendment is expected to benefit both international technology firms and India’s expanding data centre ecosystem.
Potential advantages include:
- Lower entry barriers for foreign cloud providers.
- Faster deployment of AI and cloud infrastructure.
- Increased investment in hyperscale and colocation facilities.
- Greater participation from smaller Indian infrastructure companies.
- Improved competitiveness against other global data centre destinations.
Industry experts say permitting leased facilities instead of requiring ownership reduces capital intensity and enables more flexible business models for infrastructure providers.
Boost for India’s AI Infrastructure Ambitions
The proposal comes as India seeks to become a major destination for AI and cloud computing investments. The scale of the global contracts in play shows what is at stake — Anthropic just signed a $10 billion computing deal anchored to a data centre in Norway rather than India.
Rapid growth in:
- Generative AI.
- Enterprise cloud adoption.
- AI training infrastructure.
- High-performance computing.
- Data localisation requirements.
is driving strong demand for new data centre capacity across the country. The government believes long-term tax certainty and simplified compliance can help attract global cloud companies while anchoring critical digital infrastructure in India. Domestic services firms are already seeing the demand shift — Indian IT firms are moving to $1–20 million AI contracts as large legacy deals slow.
Broader Policy Push
The amendments are part of a wider package of proposed tax changes that also include:
- Extending tax exemptions for foreign companies supplying machinery to electronics contract manufacturers until 2041.
- Tax relief for storing components in customs-bonded facilities.
- New incentives for foreign diamond traders operating in designated trading zones.
Together, these measures aim to strengthen India’s position in advanced manufacturing, exports, cloud computing, and AI infrastructure.
Looking Ahead
The proposed relaxation of compliance rules for foreign companies using Indian data centres reflects the government’s broader strategy to position India as a global hub for cloud computing and artificial intelligence infrastructure. By allowing Indian partners to lease, rather than own, data centre facilities, the amendment lowers capital barriers and makes it easier for international cloud providers to benefit from the long-term tax incentives introduced in the 2026–27 Budget.
Looking ahead, the proposed changes are expected to encourage additional investment in hyperscale data centres, AI computing capacity, and digital infrastructure. If approved by Parliament, the revised framework could accelerate the entry of global cloud companies into India while supporting domestic data centre operators, strengthening the country’s role in the rapidly expanding global AI and cloud ecosystem.
Frequently Asked Questions
What is the tax holiday for foreign firms using a data centre in India?
Under the framework announced in the Union Budget 2026–27, eligible foreign cloud service providers that serve global customers through notified India-based data centres can receive a tax holiday until 2047. The new amendment does not change the incentive itself — it changes how firms qualify for it.
Can Indian partners lease a data centre instead of owning one?
That is the core of the proposal. Earlier the Indian partner was generally expected to own the data centre infrastructure; the draft amendment would permit leasing instead. This lowers the upfront capital commitment and opens the framework to smaller and mid-sized Indian operators. The change still needs Parliament’s approval.
Do foreign cloud firms still pay Indian tax on domestic business?
Yes. The exemption is aimed at services delivered to global customers from Indian data centres. Services sold to Indian customers must still be routed through an Indian reseller entity, and those domestic operations remain subject to Indian taxation.
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