New Tax Laws Amendment Bill Clears Path For Simpler Data Centre Incentive Regime

India’s push to become a global cloud and AI infrastructure hub received a boost after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026. The Bill simplifies the country’s recently announced data centre tax incentives by removing separate government approval requirements for eligible foreign companies and Indian data centres, while also extending the benefit to leased facilities. 

Earlier, both the foreign company and the data centre were required to obtain separate government notifications before becoming eligible for exemptions.

“We had highlighted that these requirements could add unnecessary complexity, particularly since the exemption benefits the foreign company while the Indian data centre operator continues to be taxed on its service income. It, therefore, called for reconsideration of the separate notification requirements,” said IT industry body Nasscom in a statement.

The proposed amendments remove these notification requirements. Instead, eligibility will be determined based on statutory conditions, reducing administrative hurdles for global cloud and technology firms operating through complex group structures. 

The proposed changes also ensure existing data centres are not excluded simply because they were established before a notified scheme, shifting the focus from government approvals to compliance with prescribed eligibility criteria.

Additionally, the Bill introduces flexibility in the ownership structure by permitting Indian companies to operate specified data centres on a lease model, in addition to the existing ownership-based model.

Simply put, the Bill removes administrative hurdles for foreign companies using Indian data centres, making India a more attractive destination for cloud and AI infrastructure investment, but tax reforms alone won’t determine investment decisions.

A Fillip For India’s AI Infrastructure? 

Industry executives have broadly welcomed the relaxations, saying they reduce compliance burdens and improve India’s attractiveness as a destination for cloud and AI infrastructure investments.

According to the Yotta Data Services CEO Sunil Gupta, foreign cloud providers will continue to serve Indian customers through local reseller entities that are taxed in India, meaning Indian sovereign cloud operators will not face any tax disadvantage.  

“For operators like us, this significantly increases global demand for India-based sovereign cloud, GPU and AI infrastructure, and supports India’s emergence as a major global AI compute destination,” Gupta said.

Similarly, data centre company CtrlS’ cofounder Sridhar Pinnapureddy said that as global hyperscalers and neoclouds continue to be the primary drivers of large-scale capacity demand, these reforms strengthen India’s competitiveness as a preferred destination for cloud and AI infrastructure investments. 

“Continued focus on faster approvals, reliable power availability and infrastructure readiness will be equally important to translate policy intent into accelerated investments and capacity expansion,” he added.

The tax holiday, combined with the proposed relaxations, could further accelerate investment in India’s data centre sector. The tax holiday itself was introduced in Budget 2026, exempting foreign cloud companies from Indian tax on their global income. The exemption runs from FY27 to FY47, a 20-year window meant to signal policy stability.

The incentive was introduced to address concerns that foreign cloud providers using data centre infrastructure in India could inadvertently create a taxable presence in the country, exposing a portion of their global income to Indian taxation.

As of now, technology giants and hyperscalers, including Amazon, Microsoft and Google, have collectively committed nearly $57 Bn to expand their data centre capacity in India over the next few years. Additionally, India’s public cloud services market, valued at around $17 Bn in 2025, is projected to reach $44 Bn by 2030, according to analyst firm IDC.

Amid this, the proposed amendments are expected to make India more attractive for global cloud and AI companies. 

Ashish Banerjee, senior principal analyst at Gartner, however, noted that tax certainty alone will not drive investments. Factors such as power availability, high-density grid connections, fibre connectivity and regional customer demand will continue to determine where and when companies deploy capital.

Banerjee, however, said the biggest uncertainty was the detailed compliance and reporting framework, which is yet to be notified. The industry also seeks clarity on structuring Indian reseller arrangements and how income from Indian and overseas customers will be attributed. 

Overall, the proposed changes seek to make India’s recently announced data centre tax holiday easier to use by replacing case-by-case government approvals with statutory eligibility conditions. 

Industry believes the shift could provide greater tax certainty for global cloud companies, better accommodate modern operating models such as leased facilities and multi-entity structures, and reduce administrative hurdles for Indian data centre providers.

Meanwhile, the Bill also clears the path for the central government to introduce merchant discount rates (MDR) on UPI transactions. Last week, Inc42 reported that the government is expected to levy a 0.05-0.07% MDR on UPI transactions above ₹2,000 for merchants with an annual turnover of ₹1 Cr to ₹1.5 Cr. 

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