&imwidth=800&imheight=600&format=webp&quality=medium "India Budget 2026: Tax holiday for foreign data centre operators; safe harbour margin for IT services to boost sector")
With the aim of attracting global businesses to India and boost investment in artificial intelligence, cloud services and other IT-related sectors, Finance Minister Nirmala Sitharaman on Sunday (1 February) proposed a range of direct tax reforms and other measures. Here is a look at the key proposals
Tax holiday for data centre services
Several companies are setting up data centres in India capable of handling artificial intelligence computing, and cloud services. Sitharaman proposed a tax holiday until 2047 for any foreign company providing global services by procuring data centre services in India.
Similarly, direct tax exemptions will be granted to foreign companies supplying capital goods, equipment and tooling to manufacturers operating in bonded zones and engaged in the manufacture of electronic goods.
Some critical minerals will be included in the list of minerals to incentivise their prospecting and exploration in India. These critical minerals are at the core of modern-day computing.
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IT services to get improved safe harbour margin
India is a global leader in software development services, IT-enabled services, knowledge process outsourcing services and contract R&D services related to software development. These business segments are closely interconnected.
All these services are now proposed to be clubbed under a single category, Information Technology Services (ITS), with a common safe harbour margin of 15.5 per cent applicable across the board.
Also read: Budget 2026: What changes for India's taxpayers, from ITR deadlines to penalties | Key takeaways
In addition, the threshold for availing the safe harbour for IT services is proposed to be enhanced substantially from ₹300 crore to ₹2,000 crore.
The approvals for safe harbour for ITS will be granted through an automated, rule-based system, reducing compliance friction.
The government is expected to fast-track Advance Pricing Agreement (APA) processes for the ITS sector to further enhance tax certainty and predictability.
These reforms are likely to be appreciated and welcomed by the tech industry.
