New Delhi, February 8 Domestic data center companies are likely to significantly benefit from the Budget proposal offering a 20-year tax holiday, as it will enable them to provide services to global clients without the risk of their foreign earnings being taxed in India, sources said.
The Budget proposal, which offers a 20-year tax holiday up to 2047 to any foreign company that procures data center services in India, allays fears of their global income being taxed by Indian authorities.
Regardless of whether a global company sets up its own data center in India or procures services from an Indian data center, the tax treatment will be the same, thereby ensuring a level playing field, they said. The effective corporate tax rate in India is 25.17%.
Some of the major domestic data centers in India are Nxtra Data (Airtel subsidiary), CtrlS Datacenters, Yotta Infrastructure, and AdaniConneX.
Corporate tax will be levied on profits made by domestic data centers on income earned from services provided to global entities and from the resale of cloud services to Indian customers.
In the event that the data center is a subsidiary or arm of a foreign company, the 15% safe harbor margin will apply, and corporate tax will be levied accordingly.
Sources said that the effective incidence of tax will be nearly the same whether the data center is a subsidiary of a foreign company or is promoted by a domestic entity.
To boost investment in data centers, the FY'27 Budget has proposed to provide a 20-year tax holiday up to 2047 to any foreign company that provides services to any part of the world outside India by procuring data center services in India. Sale of such services to Indian users shall be made through an Indian reseller entity and taxed appropriately, the Budget proposal said.
It also proposed to provide a 15% safe harbor to the resident entity providing data center services to a related foreign company (who is providing cloud services to any part of the world outside India), it added.
This means that tax authorities will accept without detailed scrutiny if the operating profit declared by the Indian industry is 15%.