Budget proposal on tax holiday to give big boost to domestic data centres: Sources

New Delhi: Domestic data centre companies are likely to benefit significantly from the Budget proposal offering a tax holiday of 20 years, as it will enable them to provide services to global clients without the risk of their foreign earnings being taxed in India, sources said.

The Budget proposal, which offers a tax holiday of 20 years up to 2047 to any foreign company that procures data centre services in India, allays fears of their global income being taxed by Indian authorities.

Irrespective of whether a global company sets up its own data centre in India or procures services from an Indian data centre, the tax treatment will be the same, thereby ensuring complete level playing field, they said. The effective corporate tax rate in India is 25.17 per cent.

Some of the major domestic data centres in India are Nxtra Data (Airtel subsidiary), CtrlS Datacenters, Yotta Infrastructure, and AdaniConneX.

Corporate tax will be levied on profits made by domestic data centres on income earned from services provided to global entities and from resale of cloud services to Indian customers.

In case the data centre is a subsidiary or arm of a foreign company, the safe harbour margin of 15 per cent will kick in, and corporate tax will be levied accordingly.

Sources said the effective incidence of tax will nearly be same whether the data centre is a subsidiary of foreign company or promoted by a domestic entity.

To boost investment in data centres, the FY'27 Budget has proposed to provide a tax holiday up to 2047 to any foreign company that provides services to any part of the world outside India by procuring data centre services in India. Sale of such services to Indian users shall be made through an Indian reseller entity and taxed appropriately, Budget proposal said.

It also proposed to provide a safe harbour of 15 per cent to the resident entity providing data centre services to a related foreign company (who is providing cloud services to any part of the world outside India), it added.

This means that tax authorities will accept without detailed scrutiny if the operating profit declared by the Indian industry is 15 per cent.