India’s Data Centre Tax Holiday Till 2047: What the Finance Act 2026 Means for Investors and Operators

The Finance Act, 2026 — enacted following the Union Budget presented on 1 February 2026 — inserted Entry 13C in Schedule IV of the Income-tax Act, 2025, exempting specified foreign companies from Indian tax on income arising from procuring data centre services from a specified data centre in India, for a period ending 31 March 2047. The exemption runs for twenty-one years from the current financial year. It resolves a specific legal uncertainty that had deterred major cloud operators from committing to Indian data centre infrastructure: the risk that routing global cloud services through Indian data centres would expose the operator’s entire India-sourced income to Indian corporate tax at 35%.

Key Takeaways

• Finance Act, 2026 inserts Entry 13C in Schedule IV of the Income-tax Act, 2025: income of a Specified Foreign Company from procuring data centre services from a Specified Data Centre in India is exempt from Indian tax until 31 March 2047. Effective from 1 April 2026.
• Four cumulative conditions: the foreign company must be specifically notified by the Central Government as a Specified Foreign Company; it must not own or operate any physical infrastructure of the data centre; Indian-market services must route through an Indian reseller; and prescribed information must be maintained and submitted.
• Prior to the Finance Act, 2026, foreign companies were taxed at 35% on income accruing in India — with no data centre-specific exemption.
• The Taxation and Other Laws (Amendment) Bill 2026 (introduced 3 August 2026, not yet enacted) adds a lease model: Indian partner entities can lease rather than own the data centre, reducing the capital barrier for smaller domestic operators partnering with hyperscalers.
• As of August 2026, the Central Government has not yet notified either a Specified Data Centre or a Specified Foreign Company — the statutory framework is in place but not yet operational.
• India’s operational data centre capacity was approximately 1.12 GW as of June 2025 (Colliers India). The power ministry told Parliament on 27 July 2026 that data centres may add 26.3 GW to the national grid by FY32.
• The DEA’s October 2022 infrastructure designation for data centres, combined with the Finance Act exemption, means Indian data centres now have both project-finance access and a tax-neutral framework for foreign users.

What the Exemption Actually Says

Entry 13C in Schedule IV of the Income-tax Act, 2025 exempts income arising to a Specified Foreign Company from procuring data centre services from a Specified Data Centre until 31 March 2047. Three definitions do the operative work. A “data centre” is defined as a facility where computers and networking equipment gather, store, analyse, share, or access large amounts of data — a technology-neutral definition wide enough to cover colocation, hyperscale, and managed services models. A “Specified Data Centre” is a data centre that satisfies the conditions the Central Government prescribes by notification. A “Specified Foreign Company” is a foreign company notified by the Central Government — the exemption is not self-executing; each beneficiary must be affirmatively designated.

The four cumulative conditions are the practical gatekeeping mechanism. The SFC must not own or operate any of the physical infrastructure of the data centre — the exemption is for users of Indian data centre capacity, not for foreign operators running their own facilities. Where the SFC provides services to Indian customers, those services must go through an Indian reseller entity — preserving Indian taxability on the reseller’s margin and preventing a complete bleed-out of taxable income from the domestic market. The SFC must maintain and submit prescribed information. And the Central Government must have specifically notified the company.

Party	Tax position before Finance Act 2026	Tax position after Finance Act 2026
Specified Foreign Company (global revenue)	35% tax on India-sourced income	Exempt until 31 March 2047
Specified Foreign Company (Indian-market revenue)	35% tax on India-sourced income	Must route through Indian reseller — reseller’s margin taxable in India
Indian reseller entity	Normal Indian corporate tax	Normal Indian corporate tax — no change
Indian data centre developer (Specified Data Centre)	Normal Indian corporate tax; DEA infrastructure designation (Oct 2022)	Normal Indian corporate tax; + access to SFC customer base with statutory certainty

The Indian Reseller Requirement

The most structurally significant condition is the Indian reseller requirement for Indian-market revenue. A foreign cloud company routing global workloads through Indian data centre capacity earns income from two sources: global customers (outside India) and Indian customers. The Finance Act, 2026 exempts income from global customers — the foreign company provides cloud services globally using Indian data centre infrastructure, and that global revenue is outside India’s tax net until 2047. Income attributable to Indian customers must route through an Indian reseller entity, so the reseller’s margin stays in the Indian tax base.

The boundary question — how much of a hyperscaler’s income is “global” and how much is “India-market” — is the issue that will generate transfer pricing disputes and tax authority scrutiny over the 21-year exemption period. The Finance Act does not define the allocation methodology; that is left to prescribed information reporting. Taxpayers relying on the exemption should establish a clear characterisation of Indian-market revenue from the outset, documented before the relevant financial year, rather than reconstructing it at the time of assessment.

The Lease Model: What the Monsoon Session Bill Adds

The Taxation and Other Laws (Amendment) Bill, 2026 — introduced in the Lok Sabha on 3 August 2026 as part of the same Monsoon Session package — allows the Indian partner entity to lease the data centre to the foreign company, rather than requiring ownership. Prior to this change, the framework assumed the Indian partner owned the data centre infrastructure. Ownership requires capital — a large data centre can represent an investment of ₹500 crore to ₹2,000 crore — which put the Indian partner requirement beyond the reach of smaller domestic operators.

A lease model allows a smaller Indian entity to take suitable premises, equip them to data centre standards (with a foreign sponsor’s technical assistance), and lease the completed facility to the foreign cloud operator. The Indian entity incurs operational cost without the full capital outlay of ownership. This materially expands the pool of potential Indian data centre partners for hyperscalers, and should accelerate investment in Tier 2 locations — including the Ahmedabad-Gandhinagar corridor, where land and power costs are lower than in Mumbai or Chennai.

What This Means for Developers, Lenders, and PE Funds

For Indian data centre developers, the Finance Act, 2026 framework converts hyperscaler relationships from procurement arrangements into tax-structured partnerships. A developer that qualifies as a Specified Data Centre and partners with a notified SFC is participating in a statutory tax framework — the counterparty’s tax benefit is conditional on the developer maintaining the Specified Data Centre status. That creates a 21-year compliance obligation, which needs to be built into the development agreement and the developer’s own governance framework.

For lenders, the 2047 exemption period aligns well with the 15–20 year debt tenures used in data centre project finance. The DEA’s October 2022 infrastructure designation allows data centres to access NaBFID lending, NBFC-IFC financing, and ECBs at infrastructure rates. Combined with long-term revenue certainty from a hyperscaler anchor tenant whose tax-neutral status runs until 2047, data centre assets are now fundable on terms that were not available two years ago. For PE funds, the ability to hold a data centre asset in an InvIT structure and monetise through a public listing creates an exit path that did not previously exist.

The Power Bottleneck That the Tax Holiday Does Not Solve

The 21-year tax holiday resolves the income tax problem. It does not resolve the power problem. The power ministry told Parliament on 27 July 2026 that data centres may add 26.3 GW to India’s national grid by FY32 — against an operational base of 1.12 GW. Transmission infrastructure is not keeping pace with commitment announcements. A data centre investor relying on the Finance Act, 2026 framework should treat power procurement as the primary legal and commercial risk: the tax benefit does not reduce the power risk. For an analysis of the three legal routes for data centre power procurement under the Electricity Act, 2003, see Data Centre Power in India: The Legal Framework.

Looking Ahead

Three developments will test the framework over the next 24 months. The Central Government has not yet notified either a Specified Data Centre or a Specified Foreign Company — the exemption is enacted but not operational until the first notification. The prescribed information reporting format has also not been released; CBDT is expected to issue both notifications before the end of 2026. The Taxation and Other Laws (Amendment) Bill 2026 must be passed before the lease model is available. And the MeitY national data centre policy — consultations closed August 2025, notification still outstanding as of August 2026 — when notified, will determine whether the DCEZ (Data Centre Economic Zone) framework adds a further incentive layer on top of the Finance Act exemption.

Frequently Asked Questions

What is India’s data centre tax holiday till 2047?
Under Entry 13C, Schedule IV of the Income-tax Act, 2025 (inserted by the Finance Act, 2026), income of a Specified Foreign Company from procuring data centre services from a Specified Data Centre in India is exempt from Indian income tax until 31 March 2047. Effective from 1 April 2026.

Which foreign companies qualify for the data centre tax exemption?
Only companies specifically notified by the Central Government as Specified Foreign Companies. The exemption is not automatic — each beneficiary must be affirmatively designated. As of August 2026, no company has yet been notified.

What is a Specified Data Centre under Finance Act 2026?
A data centre in India that satisfies the conditions prescribed by the Central Government by notification. As of August 2026, the Central Government has not yet notified a Specified Data Centre — the statutory framework is enacted but not yet operational.

Does the data centre tax exemption cover services to Indian customers?
Not directly. Services to Indian customers by the Specified Foreign Company must route through an Indian reseller entity. The reseller’s margin remains taxable in India. Only income from global (non-India) customers is fully exempt under the 2047 framework.

What did the Monsoon Session 2026 add to the data centre framework?
The Taxation and Other Laws (Amendment) Bill 2026 (introduced 3 August 2026, not yet enacted) allows the Indian partner entity to lease the data centre to the foreign company rather than own it. This reduces capital requirements for smaller Indian data centre operators and expands the available pool of Indian partners for hyperscaler investment.

Is the data centre tax holiday the same as the IFSC tax holiday in GIFT City?
No. The Finance Act, 2026 data centre exemption (Entry 13C, Schedule IV) applies to foreign companies using Indian data centres anywhere in India — not just in GIFT City. The IFSC tax holiday under the GIFT City framework is a separate, entity-level exemption for FMEs and AIFs registered with IFSCA in the IFSC. A GIFT City-adjacent data centre may benefit from both frameworks simultaneously, but they are legally distinct.

Speak to Candour Legal’s Taxation and Infrastructure Team

Candour Legal advises data centre developers, hyperscalers, PE investors, and lenders on the Finance Act 2026 exemption framework, Specified Data Centre eligibility, transfer pricing structuring for the Indian reseller requirement, and data centre project finance under the DEA infrastructure designation.

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About the author

Manasvi Thapar, Advocate at Candour Legal, advises on tax law, infrastructure investment, and regulatory compliance. Schedule a call with Manasvi.

Candour Legal is a full-service Indian law firm with offices in Ahmedabad, Mumbai, and New Delhi. More on our Taxation practice.

Further reading

• Data Centre Power in India: Three Routes Under the Electricity Act 2003
• GIFT City Category III AIF: The Route That Is Replacing Mauritius for F&O Traders
• Bankers’ Books Evidence Bill 2026: Replacing a 135-Year-Old Colonial Statute