By Mukesh Butani
India’s recently released economic survey for 2025-26 noted that if the country is to sustain its competitive edge in IT, a comprehensive evolution is necessary, one that takes full advantage of the potential embedded in AI development and deployment. In line with this need, the Union Budget 2026-27 has announced a 20-year carveout for foreign cloud companies that use data centres located in India. This is a huge development, because it removes a major ambiguity for foreign companies.
Earlier, foreign enterprises availing of services could create a taxable presence in India. Other jurisdictions offer clearer rules, but India did not. This made foreign players cautious to commit FDI. The 2026-27 Budget is an attempt to clarify the law. The only condition is that any revenue earned from Indian users must be routed through an Indian reseller entity.
Tax clarity to unlock foreign investment
The Budget has also introduced a 15% safe-harbour margin on costs for foreign investors setting up data centres in India. This provides greater predictability and helps companies plan transfer pricing situations for related-party transactions better. However, some details are awaited. The nodal ministry (MeitY) will identify the companies who qualify, data centres that will be officially recognised, determination of users located in India, and related rules.
A push for data centres is happening at a time when AI-based services and digital trade are growing by the hour. AI workloads account for almost 15-20% of India’s total capacity and is expected to rise to 40%-50% by the end of 2030. Despite such majestic growth, India remains a small player in the overall topography. It generates close to 20% of the world’s data but only has around 3% of global data centres. Installed capacity is expected to grow from 1.4 GW in mid-2025 to 8 GW by 2030, but lags when compared to the US and China, which record figures of 53.7 GW and 31.9 GW respectively.
AI growth meets infrastructure ambition
The Budget and the Survey signal a clear intent. The new tax rules are not just financial measures. They also signal India’s long-term plan to attract global technology investment and strengthen its digital infrastructure over the next decade.
As global companies look for reliable places to expand their cloud and AI operations, India’s new vision gives large players a strong reason to consider heavy dosage of investments in the coming fiscal. Equally, it enables major domestic players to play a stronger role in global technology value chains and helps expand the ecosystem for AI and data centres in the country.
In the coming months, the success of this policy will depend on how swiftly the government finalises the rules and how clearly, they are communicated. The true test will be whether these changes build confidence, support long-term investment, and help India grow into a major AI player. Only then will the economic survey’s vision of India moving from resilience to indispensability in global supply chains become a true reality. The 2026-27 thus marks a qualitative shift towards India’s ever expansive appetite for a technologically florid tomorrow.
The author is a Managing Partner at BMR Legal Associates.
(With inputs from Seema Kejriwal, partner, BMR Legal)
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.