Lok Sabha clears bill removing approval gates from India's data-centre tax holiday
India's Lower House has passed a bill removing two government-notification requirements from a tax exemption intended to attract foreign cloud companies to Indian data centres. The Taxation and Other Laws (Amendment) Bill, 2026 also allows an eligible Indian operator to run a leased data centre, rather than requiring the company to own the facility it operates.
Finance Minister Nirmala Sitharaman introduced the bill in the Lok Sabha on 4 August 2026. The House passed it on 6 August by voice vote, without discussion, amid opposition protests. It now goes to the Rajya Sabha, which has yet to take it up. The measures take effect only once both Houses pass the bill and the President assents.
The bill amends the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025 and the Finance Act, 2026. It also replaces the Income-tax (Amendment) Ordinance, 2026, notified on 5 June — repealing the Ordinance while validating actions already taken under it. The Ordinance dealt with exemptions for foreign investors in government securities, not with data centres, so the data-centre measures have never been in force.
What the India data centre tax exemption currently requires
The underlying exemption was created by the Finance Act, 2026. It covers income accruing or arising in India, or deemed to do so, when a foreign company procures services from a specified data centre. The Central Board of Direct Taxes, in a set of frequently asked questions published alongside the bill, says the exemption runs through the tax year ending 31 March 2047.
The current framework requires the foreign company to be notified by the central government. It also defines a specified data centre as one notified by the Ministry of Electronics and Information Technology under an approved scheme, and owned and operated by an Indian company.
The amendment bill would remove the notification condition for the foreign company and the notification limb from the definition of a specified data centre. It would also change the ownership condition so that an Indian company may operate an eligible data centre that it owns or leases.
This does not remove compliance altogether. According to the CBDT, foreign cloud-service companies and Indian data-centre companies would still have to furnish information in a form and manner prescribed through rules. The proposed framework therefore shifts the regime away from case-specific approvals and towards compliance with statutory conditions and subsequent reporting.
What changes for cloud companies and Indian operators
For foreign cloud companies, the immediate practical consequence is a simpler route to claiming the exemption. A company would no longer have to wait for its own central-government notification, and its Indian data-centre provider would no longer need the separate ministry notification the existing definition requires.
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For Indian operators, leased infrastructure would become eligible. The CBDT's FAQ says stakeholders had argued the ownership-and-operation requirement was restrictive, because a company may operate a data centre it has procured on lease. That matters most to operators scaling faster than they can build: HCLTech's ₹14,257 crore AI data centre commitment in Odisha is the kind of build-out the ownership test was written around, and leasing widens the set of structures that qualify alongside it.
Industry reaction has been supportive. Nasscom welcomed the proposals as a positive step for India's data centre and cloud ecosystem. Ritika Loganey Gupta, GCC Tax Leader at EY India, said "the proposed amendments reflect a pragmatic evolution of India's tax framework to better align with the commercial realities of the digital infrastructure sector."
The data-centre measures are one part of a wider bill. It also cuts the qualifying conditions for eligible offshore investment funds from 13 to five, extends a tax exemption for foreign suppliers of capital equipment to Indian electronics contract manufacturers by ten years to the 2040-41 tax year, creates an exemption to 2041 for foreign companies trading rough diamonds through notified zones, and changes dividend treatment for business trusts alongside an additional surcharge on the special purpose vehicles concerned.
Why it matters in the corridor
The proposal matters to investors evaluating India and the India–Gulf corridor because it changes the permitted operating structure rather than the headline duration of the incentive. An investor weighing an Indian data-centre position would have a wider choice between owning facilities and using leased operating models, and removing individual notification gates narrows the gap between committing capital and establishing eligibility.
That question is live on both sides of the corridor. Gulf sponsors are financing data-centre capacity at scale — DataVolt's non-recourse financing for Saudi AI data centres is one current example — and corridor capital has been finding Indian structures through vehicles like Lighthouse Canton's Dubai–GIFT City wealth platform. India's leasing change does not by itself draw that capital into Indian data centres, but it removes an ownership test that narrowed the ways it could arrive. The reporting burden that replaces the approval gates remains unsettled.
Several details are still unclear. The prescribed information, filing process and timing depend on rules the bill does not set out. The proposal does not by itself establish which schemes or technical conditions a data centre must satisfy. Companies cannot treat the amendment as effective until the Rajya Sabha passes it, the President assents, and the relevant provisions commence.
The practical reading is narrow but consequential. India is not extending the exemption period announced in the Budget. It is proposing to remove two approval gates and recognise leasing as a valid data-centre operating model, while retaining a reporting obligation whose mechanics remain to be prescribed. One House has now agreed. The other has not yet voted.
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