Budget 2026 FAQs on Attracting Global Business and Investment (Data Centres)

Budget 2026 FAQs Attracting Global Business and Investment

I. Exemption: Foreign company on any income arising in India by way of procuring
Data Centre Services from a Specified Data Centre [Schedule IV of the Income-tax Act,
2025].

Q.1 What amendment has been proposed in respect of data centre?

Ans: A new section has been inserted to provide exemption to a foreign company on any income accruing or arising in India or deemed to accrue or arise in India by way of procuring data centre services from a specified data centre.

Q.2 Who shall be eligible for exemption under the proposed provision?

Ans: A foreign company notified by the Central Government for the purposes of the proposed provision shall be eligible for exemption.

Q.3 What are the necessary conditions provided under the proposed provision?

Ans: The significant condition for availing such exemption is that—
(a) such foreign company does not own or operate any of the physical infrastructure or any resources of the specified data centre; and
(b) all sales by such foreign company, where made to users located in India, are made through a reseller entity being an Indian company.

Q.4 What conditions are applicable to data centre?

Ans: The data centre for the purposes of the proposed provision shall be a “specified data centre” which is set up under an approved scheme and is notified in this behalf by the Central Government in the Ministry of Electronics and Information Technology and is owned and operated by an Indian company.

Q.5 What do we mean by “data centre services”?

Ans: “Data centre services” shall mean services provided by a data centre through the use of physical infrastructure including land, buildings, mechanical electrical power equipment, cooling system, security and information technology infrastructure including servers, computers, storage systems, operating systems, security solutions, network and associated software platforms, networking and other equipment, and human resource in India.

Q.6 What are the provisions if services are provided by the data centre to a related party service provider?

Ans: An international transaction of provision of data centre services between the eligible assessee and its associated enterprise is proposed to be included in the safe harbour regime with a margin of 15%.

Q.7 What would be the chargeability in case the cloud service provider is also an Indian resident?

Ans: In case the cloud service provider is an Indian resident, then the exemption provision will not be applicable to the said Indian resident as the provisions provide exemptions to only a notified foreign company.

Q.8 What would be the chargeability of such foreign company in case of sale in India is made through the reseller entity?

Ans: One of the conditions for availing exemption is that the notified foreign company shall make sales to users in India through a reseller entity. Therefore, if such condition is complied with, there shall be no chargeability on such income of the said foreign company.

Q.9 For what period is the exemption available under the proposed amendment?

Ans: The exemption is available for a period up to 31st March, 2047.

II. Exemption: Non-resident on income arising on account of provision of Capital
Equipment to a manufacturer located in a Custom Bonded Area [Schedule IV of the Income tax Act, 2025].

Q.1 Who is eligible for exemption under the proposed provision?

Ans: A foreign company, who is providing capital goods, equipment or tooling to the contract manufacturer for use in manufacturing, is eligible for exemption under the proposed amendment.

Q.2 What income is proposed to be exempted under the proposed provision?

Ans: Any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India, is eligible for exemption under the proposed amendment.

Q.3 Who would be the “contract manufacturer” under the proposed provision?

Ans: The contract manufacturer would be a company resident in India, who produces electronic goods on behalf of the foreign company for a consideration and is located in a custom bonded area (warehouse referred to in section 65 of the Customs Act, 1962).

Q.4 What is the intent of bringing the proposed provision?

Ans: The provision aims to promote electronic manufacturing in India by an Indian company who is manufacturing goods as a contract manufacturer of the foreign company. This shall save the said Indian company from heavy capital investment in the capital equipment, thus bringing down overall cost of production.

Q.5 For what period is the proposed amendment applicable?

Ans: The proposed amendment is applicable for the tax years up to the tax year 2030-31.

III. Exemption: Non-residents for rendering services under a notified Scheme in India.
[Schedule IV of the Income-tax Act, 2025]

Q.1 What are the existing provisions relating to residency of a person in India?

Ans: Section 6 of the Income-tax Act, 2025 determines residential status of a person in India during a tax year. The said section inter alia provides that an individual shall be resident in India in a tax year, if he is in India for a total period of 182 days or more in that tax year or is in India cumulatively for 60 days or more in that tax year and has been in India cumulatively for 365 days or more in the four years preceding such tax year, with certain exceptions.

Q.2 What are the existing provisions relating to taxation of a non-resident?

Ans: Section 5 of the Income-tax Act, 2025 inter alia specifies the scope of total income. As per section 5, the total income of a non-resident includes only those incomes which are derived from any sources in India, i.e. income which is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India during the tax year.

Q.3 Is there any relaxation in the case of non-resident under the Income-tax Act, 2025 or under the Double Taxation Avoidance Agreement in respect of residency criteria?

Ans: In the case of a non-resident from any country with which India has a DTAA, taxing right is with the country of residence if the stay in India is less than 6 months. With certain countries like USA, UK and Australia, this threshold has been increased to 2 years, as per existing DTAAs.

Q.4 What is proposed in the proposed new provision?

Ans: An exemption is proposed to an individual, being a non-resident for a period of five consecutive tax years immediately preceding the tax year during which he visits India for the first time for rendering services under a notified scheme in India. As per the proposed amendment, the exemption to such person shall be on any income which accrues or arises outside India, and is not deemed to accrue or arise in India, and shall be available for five consecutive tax years commencing from the first tax year during which he visits India for the purposes of rendering services under the notified scheme.

Q.5 What are the conditions for availing such exemption?

Ans: The exemption is available, if such person renders any service in India in connection with any Scheme as may be notified by the Central Government and fulfils such other conditions as may be prescribed.

Q.6 What is the rationale behind proposed provision?

Ans: Many non-resident experts visit India for rendering specialised services in various domain areas. However, owing to provisions contained in section 6 of the Income-tax Act, 2025 read with section 5 of the Income-tax Act, 2025 and by the virtue of their physical presence in India beyond threshold period, their global income becomes chargeable to tax in India. In order to encourage such individuals to provide specialized services in India the aforesaid amendment has been proposed.

IV. Exemption from MAT to non-residents availing presumptive taxation scheme

Q.1 What amendments are proposed regarding provisions of MAT for non-residents with presumptive taxation in the Finance Bill, 2026?

Ans: It is proposed to add two more businesses that are under presumptive taxation to the exclusion from applicability of MAT provisions — the business of operation of cruise ships (subject to prescribed conditions) and the business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India to a resident company.

Q.2 As per the existing provisions, what are the businesses of non-residents that are eligible to be governed by presumptive taxation under section 61(2) of the Income-tax Act, 2025?

Ans: The following non-resident businesses are eligible to opt for presumptive taxation:
• Business of operation of ships (other than cruise ships);
• Business of operation of cruise ships (subject to prescribed conditions);
• Business of operation of aircraft;
• Business of civil construction or erection or testing or commissioning of plant or machinery, in connection with a turnkey power project, approved by the Central Government;
• Business of providing services or facilities (including supply of plant and machinery on hire) for prospecting, extraction or production of mineral oils;
• Business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India to a resident company.

V. Expanding the list of minerals under Schedule XII of the Income-tax Act, 2025
which are eligible for deduction under section 51 of the Income-tax Act, 2025

Q.1 Is there any special provision in the Income-tax Act, 2025 relating to deduction for expenditure on prospecting etc., for certain minerals?

Ans: Yes. Section 51 of the Income-tax Act, 2025 provides for deductibility of expenses incurred in any operations relating to prospecting for, or extraction or production of, the mineral or group of associated minerals mentioned in Schedule XII of the Income-tax Act, 2025 or on the development of a mine or other natural deposit of any such mineral or group of associated minerals.

Q.2 What are the changes proposed in Schedule XII of the Income-tax Act, 2025?

Ans: In order to incentivise the prospecting for, or extraction or production of, the critical minerals, the list of minerals in Part A of Schedule XII of the Income-tax Act, 2025 has been expanded to include certain critical minerals, so that they also become eligible for special deduction under section 51 of the Income-tax Act, 2025.

Q.3 What will be the impact of such change?

Ans: It will incentivise the prospecting and other associated activities in relation to critical minerals.
The person engaged in such business will be allowed to claim expenses incurred at any time during the year of commercial production and any one or more of the four years preceding that year as deduction. The deduction is amortised over a period of ten subsequent years.

Q.4 From when the said change in Schedule XII of the Income-tax Act, 2025 be made effective?

Ans: The said amendment shall be made effective from 1st April, 2026 and will apply for tax year 2026-27 and subsequent years.

VI. Rationalisation of Tax Rate and Extension of Deduction for IFSC and OBUs
(Section 147 and 218 of the Income-tax Act, 2025)

Q.1 What is the current tax benefit available to units in IFSC and OBUs?

Ans: Under section 147 of the Income-tax Act, 2025 there is 100% deduction on certain incomes of units of IFSC and OBUs. This deduction is available for 10 consecutive years out of 15 years for IFSC units and 10 consecutive years for OBUs.

Q.2 What is the new time limit for this deduction?

Ans: Now under section 147 of the Income-tax Act, 2025 the 100% deduction for the units of IFSC will be given for 20 consecutive years out of 25 years for IFSC units and 20 consecutive years for OBUs, the 25/20 years being counted from the year of registration in IFSC in respect of the units or OBUs respectively.

Q.3 What happens after the time limit for deduction expires?

Ans: The business income of these units in IFSC will be taxed at a rate of 15% after the time period for deduction expires.

Q.4 Which income is allowed for deduction?

Ans: The income which is to be allowed for deduction shall be the income from—
(a) an Offshore Banking Unit located in a Special Economic Zone; or
(b) the business activities referred to in section 6(1) of the Banking Regulation Act, 1949, with undertakings in a Special Economic Zone or entities that develop, develop and operate, or develop, operate and maintain Special Economic Zone; or
(c) the approved business activities of any Unit of an International Financial Services Centre set up in a Special Economic Zone; or
(d) transfer of an asset being, an aircraft or a ship, leased by a unit referred to in clause (c) if such unit commenced its business operations by 31st March, 2030.

Q.5 What is the rate of taxation for these units when they cannot avail deduction?

Ans: The business income of these units shall be taxed at the rate of 15% once the period of availing deduction expires.

VII. IFSC: Relaxation from applicability of deemed dividend for treasury centres in
IFSC. [Section 2(40) of the Income-tax Act, 2025].

Q.1 What was the current provisions relating to deemed dividend contained in section 2(40)(v) of the Income-tax Act, 2025 relating to IFSC?

Ans: The existing provisions provided that the following shall not be treated as deemed dividend:
Any advance or loan between two group entities, where—
• one of the group entities is a “Finance Company” or “Finance Unit” located in IFSC; and
• the “parent or principal entity” of such group is listed on a stock exchange in a country or territory outside India (other than the country or territory outside India as specified by the Board in this behalf).

Q.2 What are the changes in the amended provisions?

Ans: As per the amended provisions, the following shall not be treated as deemed dividend, where—
(i) any advance or loan is between two group entities, and the “parent or principal entity” of such group is listed on a stock exchange in a country or territory outside India (as specified by the Central Government in this behalf);
(ii) the transaction of loan or advance is between one of the group entities which is a “Finance Company” or “Finance Unit” located in IFSC and the other entity which is either the parent or principal entity of the group (as above) or other group entity; and
(iii) the parent or principal entity of the group or other group entity shall have to be situated in the country or territory outside India specified by the Central Government.

Q.3 What was the rationale behind proposing amendment in existing provision?

Ans: The existing provision does not take into account the location of the other group entity with which an entity located in IFSC may have transactions in the nature of loan or advance. This may have led to misuse of the existing provision. Therefore, an amendment has been proposed in the said provision.