India has dropped a technology incentive that may be of interest to foreign firms.
The Union Budget 2026 offers a complete tax holiday lasting until 2047 for foreign AI and cloud providers that route their global services through Indian data centers.
The sweeping policy change aims to transform India into a dominant data center hub while supporting the ambitious goal of a $3 trillion digital economy.
By combining zero taxation with subsidized computing power from the IndiaAI mission, this budget removes cost barriers to cutting-edge AI innovation at a scale that most countries cannot match. For global tech giants evaluating where to park their next-generation AI infrastructure, it was simply impossible to ignore India.
Catch
But here’s where the fine print gets interesting. Foreign companies must route all services to Indian customers through an Indian reseller. This structural mandate is forcing global tech giants to forge local partnerships rather than serve the Indian market directly – a major operational shift that fundamentally changes the way companies like AWS, Microsoft Azure and Google Cloud would operate in the region.
In practice, this means AWS can’t simply flip a switch and serve Indian customers from existing infrastructure – they need an Indian partner entity handling every transaction. The policy combines this requirement with a 15% safe harbor provision for related party services, creating a compliance pathway that simplifies what would otherwise be complex tax documentation for internal charges between corporate entities.
This dual strategy removes regulatory uncertainty while encouraging foreign providers to process sensitive data within India’s borders and addressing data protection law compliance concerns that previously caused friction.
The framework delivers bold policymaking designed to accelerate investment, capacity expansion and enterprise cloud adoption across the subcontinent. The government has also extended tax benefits to GIFT City to increase business predictability.
India of love
India has just declared war in the global AI infrastructure race. By repositioning cloud infrastructure and data centers as strategic national assets rather than mere business utilities, the budget signals a major shift in how governments compete for AI dominance.
Zero taxation until 2047 means that companies making infrastructure decisions today can plan their cost structure for the next two decades with complete confidence. That kind of predictability is gold in an industry where billion-dollar data center investments require long-term financial modeling. Compare that to Ireland’s 12.5% corporate tax rate – the incentive that made Dublin the tech capital of Europe – and India’s total tax elimination by 2047 dwarfs even the most aggressive Western approaches.
Reality check
The tax holiday marks a turning point for India’s digital ambitions, but success depends on overcoming infrastructure challenges that could undermine the entire strategy.
Zero taxation only makes sense if massive hyperscale data centers can actually be built and operated. Although India’s power grid is improving, it has not been tested to the extent required for AI workloads running 24/7 in equatorial heat.
Power grid capacity, industrial cooling infrastructure and the availability of skilled labor remain question marks that could decide whether global tech giants actually move significant AI operations to Indian soil – or simply save on taxes while keeping essential infrastructure elsewhere.
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