Union Budget 2026: What is tax holiday?

In a bid to position India as a global hub for digital infrastructure, Union Finance Minister Nirmala Sitharaman on Sunday proposed a sweeping tax holiday for foreign companies providing cloud services to global customers using data centres located in India. The exemption, valid until 2047, is expected to attract large-scale investments and spur growth in interconnected sectors like AI, semiconductors and enterprise cloud solutions.

Key Highlights:

• Tax holiday applies to foreign cloud service providers catering to customers outside India, leveraging data centre operations within the country
• Services provided to Indian customers must be routed through an Indian reseller entity, which will be taxed under India's standard regime
• 15% safe-harbour margin for Indian resident entities providing data centre services to related foreign companies
• India Semiconductor Mission (ISM) 2.0 launched with expanded support for electronics sector
• Electronics Components Manufacturing Scheme outlay increased to Rs 40,000 crore
• 2% profit margin safe harbour for companies engaged in electronics manufacturing

The move is expected to accelerate investment in hyperscale data centres, strengthen India's digital backbone, and create new opportunities for growth in the tech sector. The government's focus on AI, semiconductors and digital infrastructure is aimed at driving long-term economic growth and positioning India as a key player in the global tech ecosystem