Govt proposes easier compliance for foreign firms using Indian data centres

The government on Tuesday proposed structural changes to ease compliance requirements for foreign companies procuring data centre services from India by doing away with the notification requirement, a move aimed at improving the ease of doing business.

The Taxation and other laws (Amendment) Bill, 2026, introduced in the Lok Sabha on Tuesday, reduces reporting requirements for foreign companies which wish to claim the tax holiday announced in the FY27 Budget. It also ensures that genuine data centre businesses get started and operate with far less friction.

In the Union Budget 2026-27, the Government had offered a tax holiday of 20 years up to 2047 to any foreign company that procures data centre services in India, thus allaying fears of their global income being taxed by Indian authorities.


Irrespective of whether a global company sets up its own data centre in India or procures services from an Indian data centre, the Budget said that tax treatment would be the same, thereby ensuring a complete level playing field.

In an ease of doing business measure, the Government, through the Taxation and other laws (Amendment) Bill, 2026, has now proposed to do away with the requirement of a foreign company being separately notified by the Central Government to claim the income tax exemption. Also, the condition for the Central Government (Ministry of Electronics and Information Technology) to notify the specified data centre has been removed.

"By removing the requirement for separate government notifications of both the foreign cloud company and the Indian data centre, and by permitting a leased model of operation, the Bill takes multiple approval steps out of the process altogether," a finance ministry source said.

The income tax department in a FAQ said foreign companies providing cloud services as well as the Indian companies providing data centre services shall be required to furnish information in such form and manner as may be prescribed by way of Rules.

"This condition is considered sufficient for allowing the data centre reform to operate. Therefore, for the purposes of ease of doing business, the notification conditions for the foreign company as well as the Indian data centre company are proposed to be removed," it said.

The Bill also provided that in case a specified data centre is to be operated by the Indian company, the lease model of ownership has also been allowed.

To a query on the effect of allowing the leased model of ownership for Indian data centres, the FAQ said that stakeholders had represented before the Government that the condition of 'specified data centre' being owned and operated by the Indian company may be somewhat restrictive in the sense that an Indian data centre may be operated by an Indian company after it has been procured on a lease basis.

Therefore, an amendment has been made in the provisions to provide for the leased model of operation also, the FAQ added.

In short, the proposed Bill removes these approval requirements and, importantly, allows Indian data centres to be run on a leased basis rather than only under direct ownership.

"The result is a much larger and more flexible ecosystem of Indian data centres serving global cloud players. This reform is expected to help India build large "AI data cities" and attract significant investment into them," sources added.