The Finance Minister has announced a significant proposal for the Indian data centre sector in Union Budget 2026, introducing a 15% safe harbour rate for Indian companies operating data centres. This development marks an important policy initiative aimed at the growing data centre industry in the country.

Safe Harbour Rate Proposal

The proposed measure specifically targets Indian companies engaged in data centre operations. Safe harbour rates typically provide businesses with tax certainty by establishing predetermined acceptable profit margins for transfer pricing compliance, reducing the complexity of documentation and potential disputes with tax authorities.

Industry Impact

This proposal comes at a time when India's data centre sector is experiencing significant growth, driven by increasing digitalization and cloud adoption across various industries. The introduction of a specific safe harbour rate for data centre companies could provide greater regulatory clarity and potentially encourage further investment in the sector.

The 15% rate structure aims to streamline tax compliance for companies operating in this technology-intensive sector, potentially reducing administrative burden and providing more predictable tax outcomes for businesses in the data centre space.

The Finance Minister announced comprehensive tax benefits in Union Budget 2026-27 designed to attract foreign investment and strengthen India's digital infrastructure. The budget introduces tax breaks for cloud services and data center users while expanding IT safe-harbour rules, marking a significant policy shift toward technology sector incentives.

Comprehensive Tax Benefit Framework

The Union Budget 2026-27 presents an expanded approach to technology sector incentives, extending beyond the previously announced cloud services tax holiday. The policy now encompasses both cloud service providers and data center users, creating a broader ecosystem of tax advantages for digital infrastructure stakeholders.

Enhanced IT Safe-Harbour Provisions

A key addition to the budget framework includes the expansion of IT safe-harbour rules, which will provide greater regulatory clarity and tax certainty for technology companies operating in India. This expansion represents a strategic move to create a more investor-friendly environment for international technology firms.

The enhanced safe-harbour provisions are designed to complement the tax breaks for cloud and data center operations, creating a comprehensive incentive structure that addresses multiple aspects of technology sector concerns.

Foreign Investment Focus

The budget's emphasis on attracting foreign investment through these technology-focused tax benefits signals the government's recognition of the critical role international capital plays in developing India's digital infrastructure. The combination of cloud service incentives, data center user benefits, and expanded IT safe-harbour rules creates multiple entry points for foreign investors.

Strategic Impact on Digital Ecosystem

The expanded scope of tax benefits under Union Budget 2026-27 positions India as an increasingly attractive destination for technology investments. By addressing the needs of both service providers and users within the digital infrastructure space, the policy framework aims to accelerate the development of a robust domestic technology ecosystem while maintaining competitiveness in the global market.