Following the announcements made in the Union Budget 2026-27, Nasscom submitted its post-budget implementation feedback to the Ministry of Finance on 3 March 2026 , outlining a set of recommendations aimed at ensuring clarity, consistency, and effective implementation of the newly introduced provisions impacting the digital economy.
The submission focuses particularly on the tax exemption framework for foreign companies procuring data centre services from India, which represents a significant policy step towards positioning India as a global hub for digital infrastructure and cloud services delivery. While the announcement has been widely welcomed by the industry, Nasscom's recommendations seek to address certain drafting and operational issues to ensure the framework works seamlessly for modern cloud service provider (CSP) operating models.
Ensuring Coherence Between Data Centre Definitions
One of the key recommendations relates to the alignment of the definition of "data centre services" across the tax exemption provisions and the draft Safe Harbour rules. Currently, the exemption provision adopts a broad definition that includes network infrastructure and associated software platforms, whereas the draft rules exclude data hosting services.
Given that modern cloud and digital infrastructure services integrate hosting, compute, storage, orchestration and security layers, this divergence could unintentionally restrict eligibility for contemporary CSP business models. Nasscom has therefore recommended aligning the Safe Harbour definition with the exemption framework and removing the exclusion for data hosting services.
Addressing Practical Issues in the "Reseller Routing" Condition
The proposed framework requires that all sales to customers located in India must be routed through an Indian reseller entity. While the policy intent is clear, a literal interpretation could create unintended consequences. For instance, even a single direct sale to an Indian customer could potentially jeopardize the exemption for the entire stream of global income derived from Indian data centre services.
To address this, Nasscom has recommended introducing a proportionate application of the condition, ensuring that isolated non-routed transactions do not invalidate the broader exemption. A simplified computation mechanism for such transactions has also been suggested to ensure compliance without disrupting the policy objective.
Clarifying the Meaning of "Users Located in India"
Another recommendation concerns the use of the phrase "users located in India" in determining the reseller requirement. In modern enterprise contracting, cloud services are often purchased by global headquarters while being accessed by employees across multiple jurisdictions.
Interpreting the provision based on the physical location of individual users could therefore lead to operational uncertainty and compliance challenges. Nasscom has suggested replacing the term "users" with "customers", or clarifying that the condition should be assessed based on the location of the contractual counterparty rather than end-user access points.
Avoiding Ambiguity Around Data Centre Operations
The proposed provision also requires that the foreign company must not own or operate the physical infrastructure or any resources of the specified data centre. While the intent is to ensure that the infrastructure is owned and operated by an Indian entity, the inclusion of the phrase "any resources" may create ambiguity.
In modern cloud service delivery, foreign service providers routinely interact with workloads through logical access for configuration, monitoring and security administration. Nasscom has therefore recommended removing the words "any resources" so that the condition is clearly limited to physical ownership or operational control of infrastructure, thereby reducing the risk of interpretational disputes.
Clarifying Group Structures and Operational Models
Given the scale and complexity of global cloud service operations, different group entities often perform different functions. In many cases, one entity procures data centre capacity while another entity contracts with customers globally.
To avoid unintended restrictions on such standard operating models, Nasscom has recommended that the Ministry clarify-through administrative guidance-that the exemption should continue to apply even when procurement and customer contracting functions are carried out by different entities within the same multinational group, provided the statutory conditions are met.
Ensuring Eligibility of Existing Data Centres
Another important aspect relates to the definition of "specified data centre", which refers to facilities established under an approved scheme and notified by the Ministry of Electronics and Information Technology (MeitY).
Nasscom has recommended clarifying that existing data centre facilities will also be eligible for certification under the scheme once notified, ensuring that previously established infrastructure investments are not unintentionally excluded.
Similarly, the industry has sought clarification that lease-based and colocation models-common in global data centre operations-should be treated as satisfying the "owned and operated" requirement, provided the Indian operator owns the infrastructure stack and exercises operational control.
Additional Implementation Clarifications for Tax Administration
In addition to the data centre framework, Nasscom's submission also highlights several drafting and implementation clarifications relating to broader tax reforms announced in the Budget. These include:
- Aligning the start-up turnover threshold for tax deduction with the DPIIT start-up recognition framework
- Clarifying the fee trigger for revised returns in line with the extended filing window
- Introducing a reasonable cause safeguard for audit default fees to address genuine hardship cases
- Providing clear operational guidance for the proposed integration of penalty provisions within assessment orders, ensuring penalties are applied only after due process and not mechanically.
union budget 2026 Datacenter startup Assesment DPIIT
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