Budget 2026 provides exemption to a foreign company which provides cloud services globally including in India.
➡️The exemption is available from Tax year 2026-27 onwards till Tax year 2046-47.
➡️There are four essential conditions for the foreign company to satisfy-
1. The foreign company is notified.
2. The data centre company in India from which data centre services are taken is an Indian company.
3. The data centre is notified by MeiTY.
4. The services by the foreign company to Indian users is provided through an Indian reseller entity, being an Indian company.
➡️The exemption provides certainty to foreign companies who are in the business of providing cloud services and procure services from a data centre in India.
➡️There will not be any risk for such foreign companies of their global income being taxed in India on this account.
➡️The profits on the income from domestic economic activities that is –
(i) data centre services to the global entity by the resident data centre; and
(ii) resale of cloud services to Indian customers by the resident reseller entity, will remain taxable as any other domestic company.
➡️However, where the Indian data centre is a related entity of foreign company (cost plus centre), safe harbour margin of 15% is provided.
➡️The treatment of foreign cloud services entity is the same whether the data centre is Indian owned or a subsidiary of the global entity. So the level playing field between an Indian owned data centre and the subsidiary of a foreign company remains the same as earlier.
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