Budget 2026: Sitharaman announces ‘tax holiday’ for foreign companies setting up data centres in India

Under this ‘tax holiday’, a safe harbour of 15% on cost for companies providing data services from India will be implemented.

Published on: Feb 1, 2026, 12:23:55 IST

By HT News Desk

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While presenting the Union Budget 2026 on Sunday, finance minister Nirmala Sitharaman has announced a ‘tax holiday’ for foreign companies in order to boost the setting up of data centres in India.

Finance Minister Nirmala Sitharaman presents the 'Union Budget 2026-27' in the Lok Sabha, in New Delhi. (Sansad TV)

Under this reform, the government has proposed a “tax holiday” till 2047, which would work as a safe harbour of 15% on cost for companies providing cloud services using data centres in India. Follow LIVE updates on Budget 2026 here

Key points to note -

All IT services will be clubbed under a single category with a common safe harbour margin of 15.5%.
Threshold for availing safe harbour for IT services to be enhanced to ₹2,000 crore from ₹300 crore.
A Safe harbour for IT services to be approved by an automatic rule-driven model.

Also Read | New Income Tax Act to come into effect from April 1, 2026: Nirmala Sitharaman

What is a tax holiday?

A tax holiday is a government-granted, temporary reduction or elimination of taxes—such as income, property, or sales tax. This "holiday" is announced to stimulate economic growth, encourage investment in specific industries or boost consumer spending.

Such an incentive is often used in developing nations or special economic zones. A key purpose of introducing a 'tax holiday' is to encourage new businesses to set up, foster innovation, create jobs, and attract foreign direct investment.

Union Budget 2026 presented

The Union Budget 2026-27 was presented by finance minister Nirmala Sitharaman on Sunday - February 1, 2026.

While presenting the budget in the Lok Sabha, Sitharaman highlighted the theme of three kartavya (duties).

“This three-fold approach requires supportive ecosystem. It is a unique, yuva shakti (youth power)-driven budget,” she said, presenting her ninth consecutive budget.

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