Tax certainty for foreign Cloud service providers to curb disputes: Experts

New tax certainty rules for foreign cloud firms aim to prevent disputes on permanent establishment and global income, boosting confidence in India's fast-growing data centre ecosystem

Disputes on taxes can be prevented through the Budget provision aimed at foreign cloud-service providers procuring data from India, according to experts. 

The Budget has given clarity on matters of permanent establishment and the taxation of service providers’ global income. 

The Budget provision follows a series of announcements late last year by global tech giants, including Microsoft’s $17.5 billion commitment for artificial-intelligence (AI) and cloud infrastructure, AWS’ $7 billion investment in Telangana, and Google’s $15 billion plan for data centres and AI hubs. According to Rohinton Sidhwa, partner, Deloitte India, since most of the companies are from the United States (US), this settles some of the irritants on digital taxes that may have come in the way of India-US relations. 

“The proposed amendment will allay concerns of foreign cloud-service providers regarding their tax implications in India on account of hosting software platform/data on Indian data centres by assuring them that they will not be liable to tax in India up to 2047,” said Himanshu Parekh, partner, KPMG. 

Nasscom, in its pre-Budget recommendations, had urged the government to give guidelines to separate standard data-centre hosting services, where Indian companies pay tax on an arm’s length basis, from cases where foreign companies have direct control over their infrastructure. This will give certainty on tax rules, especially around a permanent establishment in India and profit attribution. Meanwhile, a senior official of the finance ministry said foreign companies would be required to file an application with the central government to claim the proposed tax holiday. This is to be under rules yet to be framed under the income-tax law. 

An email sent to the ministry remained unanswered till the time of going to press. “While the Budget proposal is beneficial and removes uncertainties, the industry has to watch the rules and the conditions to be complied with. There should not be onerous conditions at the time of granting approvals,” said Samir Kanabar, partner, EY. 

According to the Finance Bill, 2026, to get the exemption from 2026-27 to 2046-47, four key conditions must be met: The foreign company must be notified; the Indian data centre providing service must be an Indian company notified by the Ministry of 

Electronics and Information Technology; service to Indian users must be routed through an Indian reseller entity that is an Indian company; and the foreign company must not own or operate any physical infrastructure or resources of the specified data centre. 

The ministry clarified that the profits from domestic economic activities — data-centre service provided to a foreign entity by a resident data-centre company and resale of cloud service to Indian customers by the resident reseller — would continue to be taxable as in the case of any other domestic company.

 

Policy certainty

• Budget 2026-27 introduces clarity for foreign cloud service providers using Indian data centres, reducing future tax disputes
• Provisions remove ambiguity around permanent establishment risk and taxation of global income for foreign companies
• Move follows large late-2025 commitments by Microsoft ($17.5 bn), AWS ($7 bn), and Google ($15 bn) in India’s Cloud and AI infrastructure
• Experts say the amendment settles long-standing irritants on digital taxation, especially for US-based tech giants