Why the Union Budget 2026 cloud tax holiday is bigger than it looks

Budgets often promise direction. Rarely do they offer duration. The Union Budget 2026–27 does both for Cloud computing in India.

The announcement of a cloud tax holiday for foreign Cloud providers using Indian datacentres may sound technical. It is not. It is one of the clearest policy signals India has sent to global technology investors in years.

Union Budget 2026 cloud tax holiday and long-term policy certainty

The most important word in the announcement is not tax. It is certain.

Cloud infrastructure is not built on annual plans. Hyperscale datacentres work on 15–20 year horizons. Until now, India struggled to align policy timeframes with infrastructure realities.

Shailesh Dudani, Senior Vice President, & BU Head Sales, CMS IT Services, frames this shift clearly:

“The tax holiday announced till 2047 for foreign cloud providers using Indian data centres is one of the most structurally important policy moves India has made in digital infrastructure. This is less about tax relief and more about long-term certainty, removing litigation risk, clarifying profit attribution, and signalling that India wants to be a global execution hub for cloud and AI, not just a consumption market.

India’s cloud market is already growing at over 20% CAGR and is expected to cross USD 35–40 billion by 2030. However, large-scale investments in hyperscale data centres require 15–20 year horizons. Policy visibility of this nature directly improves project viability, accelerates capacity creation, and positions India competitively against hubs like Singapore and Ireland.

Equally important is the structure, global revenues remain untaxed, while Indian reseller and data centre entities stay within the tax net. This balances investment attraction with domestic value creation. Over time, this will catalyse GCC growth, cloud-native startups, AI workloads, and high-quality employment, reinforcing cloud as core economic infrastructure for India’s digital economy.”

This is not an incentive-chasing short-term capital. It is an invitation for long-term commitment.

Cloud tax holiday impact on hyperscale datacentres in India

Hyperscale datacentres are capital-heavy assets. Land, power, cooling and fibre define viability long before servers arrive.

The tax holiday directly improves:

• Project bankability

• Predictability of returns

• Risk assessment for global Cloud boards

For India, this means faster capacity creation. For enterprises, it means more local Cloud regions and better performance for data-intensive workloads.

Union Budget 2026: IT services reforms and cloud ecosystem growth

The tax holiday does not stand alone. The Budget also simplifies how IT services are treated under the tax framework. This matters more than it appears.

Deepak Mittal, CEO, CloudKeeper, highlights the broader picture:

“The Union Budget 2026–27 provides a strong and forward-looking framework for India’s IT and cloud ecosystem. By bringing all IT services under a single category with higher safe harbour thresholds and automated approvals, the Budget significantly improves regulatory clarity and ease of doing business for technology companies.

The focus on emerging technologies such as AI, along with incentives for global cloud service providers to operate through data centres in India, positions the country as a key hub for digital and cloud-led services. As enterprises increasingly adopt AI-driven and data-intensive workloads, cloud usage is expected to scale rapidly across sectors.

In this environment, financial discipline and transparency in cloud spending will become critical. The Budget reinforces the need for enterprises to balance innovation with efficiency, ensuring that cloud investments deliver measurable value while supporting sustainable growth.”

Regulatory clarity is not glamorous. But it is what turns intent into execution.

AI workloads, cloud infrastructure and enterprise adoption trends

AI changes the Cloud conversation entirely.

AI workloads are heavier, more data-hungry and far less tolerant of latency. Keeping compute close to users is no longer optional. It is an architectural necessity.

With global Cloud providers incentivised to operate from Indian datacentres, enterprises gain:

• Faster AI model training

• Better data residency compliance

• Lower operational friction

This is where Cloud stops being an IT choice and becomes economic infrastructure.

Who benefits from the cloud tax holiday, and who must adapt

The immediate beneficiaries are foreign Cloud providers willing to invest long-term. But the secondary impact is wider.

• Indian enterprises gain more negotiating leverage

• Global Capability Centres expand faster

• Cloud-native startups get local hyperscale access

• Skilled employment grows around datacentres and AI operations

At the same time, enterprises will face sharper scrutiny on Cloud spending. Governance, optimisation and value tracking will move from best practice to baseline expectation.

Why Union Budget 2026 positions India as a global Cloud hub

This Budget does not aim for headlines. It aims for infrastructure.

By aligning tax policy, IT services regulation and Cloud strategy, India signals a shift from being a Cloud consumption market to a Cloud execution hub.

That transition will not be visible overnight. But over the next decade, it will quietly shape where data lives, where AI runs and where digital value is created.