One of the most closely watched announcements was the proposed tax holiday for foreign cloud service providers that invest in data centres and cloud infrastructure within India.
The policy is designed to attract global hyperscalers such as AWS, Microsoft Azure, and Google Cloud while encouraging them to deepen their physical and operational presence in the country.
Although the final contours will be clarified in the Finance Bill 2026, the intent is clear.
The incentive applies to foreign companies offering cloud services through Indian-based infrastructure.
It directly addresses long-standing concerns around permanent establishment exposure and tax uncertainty.
The policy aligns with India’s broader push for AI readiness, data localisation, and scalable compute capacity.
India’s demand for cloud and AI compute is rising faster than supply. High infrastructure costs and regulatory ambiguity have slowed investment decisions. By reducing tax friction, the government is signalling stability and long-term intent.
For global providers, this lowers India-specific risk. For Indian startups and enterprises, it promises more affordable, locally available compute power.
Beyond big-ticket infrastructure moves, the Budget also addresses everyday tax pain points that affect cash flow and compliance.
TCS Reductions Under LRS
Tax Collected at Source rates have been reduced for several overseas transactions:
Education and medical remittances now attract 2 percent TCS, down from 5 percent.
Overseas tour packages move to a flat 2 percent rate, replacing the earlier tiered structure.
Since TCS is adjustable against final tax liability, the benefit is primarily improved liquidity and lower upfront outflows for families and individuals.
On the TDS front, the focus is on reducing disputes and administrative burden:
A rule-based, automated system will issue lower or nil TDS certificates for eligible small taxpayers.
Manpower supply services are now clearly classified under contractor payments, with TDS capped at 1 percent or 2 percent.
While the overall TDS rate structure remains largely unchanged, clearer rules and automation aim to reduce delays and litigation.
For businesses, especially service providers and SMEs, this translates into predictability and faster cash cycles.
The Budget avoids dramatic tax slab changes and instead doubles down on targeted reform.
For technology leaders, the cloud tax incentive signals a serious push to make India a global digital infrastructure hub. For finance heads and founders, TCS and TDS easing removes friction that quietly impacts working capital.
Markets have responded positively, viewing these steps as sensible, growth-oriented, and fiscally balanced.
This is not a headline-grabbing Budget. It is a strategic one.
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