Tax Bill proposes easier norms for data centres, incentives for electronics

Proposed amendments seek to simplify tax rules for data centres, improve ease of doing business and provide long-term certainty for electronics manufacturers and cloud firms

The Taxation and Other Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on Tuesday, could give a significant boost to India's data centre and electronics manufacturing ambitions by easing regulatory hurdles for global cloud companies and offering long-term tax certainty to foreign suppliers of capital equipment, industry experts said.

 

The changes in the Bill share a single purpose, which is to make India a more attractive and predictable place for global capital, manufacturing and business to come and stay, a finance ministry source said.

 

One of the key proposals is the removal of approval requirements for foreign cloud service providers and Indian data centre owners and operators to avail of tax exemptions until 2047, a move aimed at creating a more conducive environment for the fast-growing sector.

 

The data centre industry has already been accorded infrastructure status and is attracting billions of dollars in investment.

 

Though the conditions proposed for removal have not yet been made public, people familiar with the matter said stringent requirements, such as data centres having almost 750 MW of capacity within a stipulated time period and employing a certain number of people, are likely to be done away with.

 

Himanshu Parekh, tax partner at KPMG India, explained that the conditions applied at three levels: foreign companies to be notified, the specified data centre operated by the Indian entity to be notified, and the data centre to be owned and operated by Indian companies.

 

“This helps a lot as you don’t need to approach the government,” Parekh said.

 

“The proposed Bill removes these approval requirements and, importantly, allows Indian data centres to be run on a leased basis rather than only under direct ownership. The result is a much larger and more flexible ecosystem of Indian data centres serving global cloud players. This reform is expected to help India build large ‘AI data cities’ and attract significant investment into them,” sources in the finance ministry said.

 

Recognising the need to enable critical infrastructure and boost investment in data centres, the Budget proposed this tax holiday for those who provide services to any part of the world outside India by procuring data centre services in the country.

 

IT industry body Nasscom welcomed the proposal, saying the shift from an approval-based process to a condition-based regime is a positive step.

 

“The revised proposal would help foreign cloud service providers and other foreign companies with workloads in India, including groups with GCC operations. Their models may involve group entities, overseas resellers, Indian reseller arrangements, and cross-border customer servicing,” the body said in a press note.

 

Removing the requirement to notify foreign companies reduces the risk that tax certainty depends on the entity named in an approval, Nasscom said, adding that the better test is whether the statutory conditions are met.

 

“It also helps Indian data centre companies, as removing data centre notification reduces avoidable approval burden on the facility, while making Indian-operated infrastructure easier for global customers to use,” it said in the press note.

 

Sunil Gupta, co-founder, chief executive officer (CEO) and managing director of Yotta Data Services, said the government is making India an attractive global hub for cloud and AI infrastructure by removing case-by-case notification requirements.

 

“For operators such as Yotta, this can significantly increase global demand for India-based sovereign cloud, GPU and AI infrastructure, and support India’s emergence as a major global AI compute destination,” Gupta said.

 

For the electronics manufacturing sector, the Bill improves the ease of doing business, strengthens supply chain resilience, and encourages global technology and component companies to establish a deeper, long-term presence in the country, experts said.

 

“Including mobile phones, laptops, PCs, tablets, servers and their key components under these measures will provide greater certainty and strengthen India’s contract and brand manufacturing ecosystem,” Ashok Chandak, president of industry body India Electronics and Semiconductor Association (IESA), said. 

Ritika Loganey Gupta, GCC Tax Leader, EY India The proposed amendments reflect a pragmatic evolution of India’s tax framework to better align with the commercial realities of the digital infrastructure sector. Moving away from ownership-based conditions and recognising leased infrastructure addresses a key operational constraint for global cloud service providers.