Budget 2026 Brings Tax Relief for Foreign Cloud Companies in India

The Income Tax Department has recently shared an important update regarding cloud service providers in India.

In the budget 2026, the Government of India has announced a tax exemption for foreign companies that provide cloud services worldwide, including in India.

To get this benefit, a foreign cloud service company must satisfy the following conditions:

1. The foreign company must be officially notified by the government.

2. The data centre it uses in India must be an Indian company.

3. The data centre must be approved and notified by the Ministry of Electronics and Information Technology (MeitY).

4. The cloud services must be sold to Indian customers through an Indian reseller company.

If all these conditions are met, the foreign company will not have to worry about its global income being taxed in India just because it uses Indian data centres.

This exemption brings long-term certainty and confidence to foreign cloud companies that operate in India. It encourages them to invest in and use Indian infrastructure without fear of unexpected tax issues.

However, the income earned within India will still be taxed normally. This includes:

• Income earned by Indian data centres for providing services to foreign companies.
• Income earned by Indian reseller companies from selling cloud services to Indian customers.

These Indian companies will continue to pay tax like any other domestic business.

In cases where the Indian data centre is related to the foreign company (for example, a “cost-plus” centre), the government has fixed a minimum profit margin of 15%. This ensures fair taxation and prevents profit shifting.

Foreign cloud companies are treated the same, whether their data centres in India are owned by Indian companies or by a subsidiary of the foreign company.

So, Indian-owned data centres and foreign companies with subsidiaries are given equal treatment. There is no advantage or disadvantage for either side.

This policy helps India become a major global centre for data and cloud services while also making sure that domestic businesses pay their fair share of taxes.

This exemption will apply from the financial year 2026-27 and will remain valid up to 2046-47.