Budget 2026: Big push for data centres and simpler tax for GCC growth

Transfer pricing rate fixed at 15.5% to boost GCC confidence

The Union Budget 2026 gave a fillip to the growing data centre business in the country, and proposed a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India.

 

“Recognising the need to enable critical infrastructure and boost investment in data centres, I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity,” Finance Minister Nirmala Sitharaman said on Sunday as part of her speech.

 

A proposal is also made to provide a safe harbour of 15 per cent on cost in case the company providing data centre services from India is a related entity.

 

In a post-Budget press briefing, Minister of Electronics and Information Technology Ashwini Vaishnaw said: “The work on the $70 billion investment that has been committed in India for the setting up of data centres has already begun. For now, the total investment announcement is $90 billion. The tax holiday till 2047 that has been announced today will help India in getting included in the (list of) countries that have large artificial intelligence (AI) data centre hubs.”

 

He further said that India already has the second most-populous AI talent in the world and overall third in AI rankings. Today's announcement around the simplifications for information technology (IT) services companies and data centres will also help India get ahead into providing AI services, he added.

 

“The announcement is a strong signal aimed at accelerating capital inflow, early capacity creation, and faster enterprise cloud adoption at scale,” said Sunil Gupta, chief executive officer (CEO) of Yotta Infrastructure.

 

While tax holiday helps global players enter India quickly, large-scale and mission-critical operations gravitate towards Indian entities because predictability in taxation, compliance, and regulatory alignment matter more.

 

“As hyperscalers localise through Indian entities and expand their India footprint, demand for hyperscaler data centres combined with GPU-dense, AI-optimised infrastructure will rise sharply — areas where Indian operators with deep local execution capabilities, regulatory alignment, and energy-backed capacity are uniquely positioned,” added Gupta.

 

India’s data centre industry reached a major milestone in October when Google announced plans to set up a 1 gigawatt (Gw) AI data centre in the port city of Visakhapatnam, Andhra Pradesh, investing $15 billion over the next five years.

 

Vaishnaw further said: “The incentives given to the nuclear power industry by waiving of the basic Customs duty (BCD) will help data centres as energy is an important input for running large data centres. Energy is also an important layer of the AI architecture. Nuclear power will provide the base load clean power that is required for long-term sustenance of the AI economy.”

 

Impetus for GCCs: Safe harbour threshold raised

 

In another critical and long-awaited move, intended to benefit the IT sector, and especially global capability centres (GCCs), the government has raised the threshold for availing safe harbour for IT services to ₹2,000 crore from ₹300 crore.

 

The finance minister also clubbed software development services, IT-enabled services, knowledge process outsourcing (KPO) services, and contract research and development (R&D) services into “information technology services”, with a common safe harbour margin of 15.5 per cent for all.

 

“This is a far more simplified way of approaching the GCC tax controversy issue,” said Ritika Loganey Gupta, partner and GCC sector tax leader, EY India, referring to the clubbing of the sector and fixing of the safe harbour margin.

 

GCCs till now, based on their operations, were taxed at different percentage. So, if one could have a transfer pricing of 18 per cent if it was engaged in software development, the same for another enterprise engaged in R&D activities could go up to as high as 24 per cent. However, the controversy arose when there was a difference of opinion on the nature of the activity between the enterprise and the tax authorities, leading to numerous litigations.

 

“This is something the industry has been seeking for the past few years, working closely with the government. Now, I think the government has taken a significant step forward by providing a more comprehensive framework. Many more GCCs will be able to participate in the safe harbour regime, not only because the threshold has been significantly increased, but also because the framework has been simplified. The government has collapsed multiple categories into one and set a margin rate that is much closer to what the industry was expecting,” said Ashish Aggarwal, vice president of policy at Nasscom.

 

For IT services companies that want to conclude advance pricing agreements (APAs), the government will fast-track unilateral APA process, aiming to conclude the agreements within two years. The period of two years can be extended by a further period of six months on the taxpayer’s request.

 

“If GCCs did not go with the safe harbour margin, they had to take the APA route, which involved the process of tax authorities visiting the GCC location and even going to the company’s headquarters to understand their operations. This took anywhere between three to five years. Which means one did not know how the margins will work. With the recent proposals, the timeline has been reduced, providing more certainty,” said EY’s Gupta.