CBDT unlikely to offer tax relief for foreign data centres soon: Report

Currently, foreign companies operating or leasing data centres in India may be taxed at a higher corporate rate of 35 per cent, compared to 22 per cent for domestic firms, according to Moneycontrol

The Central Board of Direct Taxes (CBDT) is expected to soon announce guidelines clarifying the tax treatment of foreign-owned data centres operating in India, but is unlikely to offer any relief from existing norms, according to a Moneycontrol report.

 

“Foreign companies who operate data centres (DCs) have approached the CBDT in recent months. We might issue a circular soon. However, it’s unlikely there would be any change in how their incomes are taxed from the current practice,” a CBDT official told the publication.

 

Foreign firms seek easier entry into Indian market 

As reported by Business Standard last month, several foreign firms—particularly major US cloud service providers—have urged New Delhi to facilitate easier and faster access to India’s data centre market. Their demands, made during bilateral trade agreement (BTA) discussions, include streamlined access to land and power, tax incentives, and exemptions on import duties for critical infrastructure such as switches and switchgear.

 

Currently, foreign companies that operate or lease DCs in India may face a corporate tax rate of 35 per cent, in contrast to 22 per cent for domestic firms.

 

New regime for remotely managed data centres likely 

The forthcoming circular is expected to clarify how income from such data centres will be taxed, especially when the facilities are physically based in India but managed remotely from abroad.

 

“If those companies are earning profits through providing services, ideally, a 35 per cent tax rate should apply,” another official was quoted as saying.

 

Clear tax rules critical for investor confidence 

Companies in the data infrastructure space have been awaiting formal tax clarity, particularly as India pushes for data localisation and increased digital infrastructure investment. While state governments have extended certain incentives to data centres, the lack of a central tax framework remains a key concern for global investors.

 

The report also cited an industry executive who said that while government incentives are welcome, long-term investment depends on clearer and more predictable central tax rules.

 

The upcoming circular is expected to define when a foreign company’s DC operations in India constitute a taxable presence, and how the profits from such operations will be attributed and assessed.