India's data centre industry is pushing for comprehensive support in Budget 2026, seeking renewable energy incentives, funding assistance, and multi-year bankable government contracts as the sector experiences unprecedented growth driven by artificial intelligence demands. The budget, scheduled for presentation on February 1, is expected to prioritize AI and data centres as the government aims to attract substantial global investment.

Major Investment Commitments Drive Industry Growth

The past year has witnessed record-breaking investments from global technology giants, highlighting India's strategic importance in the AI ecosystem. Despite generating nearly 20% of the world's data, India currently hosts only about 3% of global data centre capacity, creating massive investment opportunities.

Industry Seeks Policy and Financial Support

Sunil Gupta, Co-Founder, CEO & MD of Yotta Data Services and chairman of ASSOCHAM National Data Centre Council, emphasized that AI compute demand has already exceeded initial projections despite the IndiaAI Mission establishing a strong policy foundation. "Expanding both the scale and scope of IndiaAI compute funding will be important to ensure timely access to infrastructure," he stated.

The industry is specifically requesting:

• Bankable, multi-year contracts and public sector workloads
• Accelerated depreciation benefits
• Access to sovereign green bonds
• Incentives linked to renewable energy usage

Infrastructure Costs and Energy Challenges

AI-driven demand has significantly altered data centre economics, with power and electrical infrastructure representing the largest capital expenditure block. According to Greyhound Research, these costs account for 35-45% of total investment, while cooling and thermal management consume 15-20%, potentially rising to 25% for AI-heavy builds.

Sanchit Vir Gogia, CEO and Chief Analyst at Greyhound Research, stressed the importance of targeted support: "Predictable multi-year power economics, streamlined open access, and rationalised levies matter more than generic incentives. Support for advanced cooling and efficiency upgrades matters more than broad slogans."

Double Taxation Concerns for Global Providers

The industry faces significant regulatory challenges regarding foreign cloud service providers. Nasscom highlighted concerns that current arrangements between local data centre operators and global CSPs may create Permanent Establishment issues, potentially leading to double taxation and compliance uncertainty.

"Any further attribution of income to foreign CSPs would result in double taxation and significant compliance uncertainty. This risk has a bearing on investments by several global cloud providers and data centre investors," Nasscom stated in its pre-budget submission.

Strategic Infrastructure Recognition Needed

Industry leaders view Budget 2026 as a crucial opportunity for government support of sovereign-grade data centre infrastructure. AS Rajgopal, MD and CEO of Nxtgen Cloud Technologies, emphasized that "The Budget can play a catalytic role by recognising data centres as strategic national infrastructure underpinning India's digital and AI-led growth."

Vishnu S, Head of Product and Marketing at E2E Networks, noted that growing cloud adoption, expansion of global capability centres, and 5G rollout will make robust data centre infrastructure increasingly critical for India's digital transformation.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.