Tsaaro got CERT-IN Empanelled | MeitY has published the DPDP Rules, 2023.
Tsaaro got CERT-IN Empanelled | MeitY has published the DPDP Rules, 2023.
Tsaaro got CERT-IN Empanelled | MeitY has published the DPDP Rules, 2023.
Tsaaro got CERT-IN Empanelled | MeitY has published the DPDP Rules, 2023.
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Research Team (Tsaaro)
Union Budget 2026 Signals Major Push for India’s Digital Infrastructure and IT Sector
Mar 3, 2026
Under the Union Budget 2026–27 the government announced two major measures aimed at strengthening the country’s position as a global digital and services hub. The first is a long-term tax holiday for foreign companies that use data centres located in India to provide cloud services worldwide. The second is an expansion of the safe harbour regime for the IT and IT-enabled services sector. Together, these steps are intended to attract global investment, reduce tax disputes, and provide greater certainty to technology businesses operating in India.
A long-term tax holiday for cloud and data centre players
One of the most notable announcements in the Budget is a tax holiday extending until 2047 for foreign companies that provide global cloud services using data centres based in India. The move is designed to encourage multinational technology companies to locate their core digital infrastructure within the country rather than offshore.
Under this policy, companies that set up or use data centres in India to serve customers across the world will receive long-term tax benefits. The government’s stated objective is to make India a preferred destination for data storage, cloud computing, and artificial intelligence infrastructure. By offering tax certainty over two decades, policymakers hope to reduce investment risk and attract large, capital-intensive projects.
Data centres are critical to modern digital economies. They support cloud services, online platforms, financial systems, government services, and emerging technologies such as AI and big data analytics. However, they require high upfront investment, reliable power, land, cooling systems, and regulatory stability. Industry players have long argued that short-term incentives are not sufficient for such long-gestation projects. The extended tax holiday directly responds to this concern.
The announcement also aligns with India’s broader digital strategy. As data volumes grow and governments worldwide push for stronger data governance, many countries are competing to host global data infrastructure. By offering long-term tax relief, India is positioning itself as a stable and cost-effective base for global cloud operations.
From a legal and regulatory perspective, the move is important because it links tax incentives with physical presence in India. While the policy does not mandate data localisation, it strongly nudges companies to process and store data domestically if they want to benefit from the tax holiday. This may have long-term implications for how global cloud providers structure their operations in India.
Safe harbour reforms for the IT services sector
The second major announcement relates to the safe harbour regime for IT and IT-enabled services. Safe harbour rules allow eligible companies to declare a fixed profit margin and avoid detailed transfer pricing scrutiny by tax authorities. These rules are particularly important for IT companies that provide services to overseas group entities, a common structure in India’s export-driven IT sector.
In Budget 2026, the government announced an expansion of the safe harbour rules. The turnover threshold for eligibility has been raised sharply, and the margins have been rationalised into a consolidated rate. This means more companies can opt into the regime, and those that do will face fewer disputes over pricing of cross-border services.
Transfer pricing litigation has been a long-standing issue for India’s IT sector. Disputes often take years to resolve and create uncertainty for businesses, especially global capability centres and service providers operating on thin margins. By widening the safe harbour regime, the government aims to reduce the volume of audits and litigation while providing predictability to taxpayers.
Industry reactions have been largely positive. IT firms have welcomed the move as a signal that the government recognises the compliance burden faced by service exporters. The reforms are also expected to improve India’s ease of doing business rankings and make the country more attractive for multinational companies setting up captive service centres.
From a policy standpoint, the safe harbour expansion shows a move towards trust-based taxation for a key export sector. Rather than aggressive scrutiny, the emphasis is on simplified rules and voluntary compliance. This approach may also free up administrative capacity within the tax department to focus on higher-risk cases.
Combined impact on India’s tech ecosystem
Taken together, the two announcements show a clear intent to strengthen India’s position in the global technology value chain. The tax holiday targets infrastructure-heavy investments like data centres and cloud platforms, while the safe harbour reforms support service-oriented businesses that form the backbone of India’s IT exports. There is also a broader strategic context. As global supply chains fragment and digital sovereignty becomes a policy priority, countries are increasingly competing on regulatory certainty. Long-term tax incentives and simplified compliance frameworks are tools to attract both capital and talent. India’s Budget 2026 uses both.
However, challenges remain. For data centres, tax incentives alone may not be sufficient. Issues such as power availability, renewable energy integration, land acquisition, and state-level approvals will continue to play a critical role. Similarly, while safe harbour rules reduce disputes, companies outside the framework will still face transfer pricing scrutiny. Clarity in implementation will also be crucial. Detailed rules, eligibility conditions, and interaction with existing tax laws will determine how effective these measures are in practice. Any ambiguity could dilute the intended benefits. If implemented effectively, these measures could boost investment, reduce litigation, and reinforce India’s role as a global digital and services hub.
News of the week:
1) MeitY Issues Legal Notice to X Over Obscene AI-Generated Content
Image Credits: Reuters
India’s Ministry of Electronics and Information Technology (MeitY) has issued a formal legal notice to X, formerly Twitter, over the circulation of obscene and sexually explicit content generated through its AI chatbot, Grok. The notice directs the platform to remove such content and submit an action-taken report, warning that failure to comply could lead to serious legal consequences under Indian law. According to MeitY, the AI-generated material violates provisions of the Information Technology Act, 2000, as well as the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. These laws require intermediaries to exercise due diligence and ensure that unlawful content, including obscene material, is not hosted or circulated on their platforms.
The government has emphasised that intermediaries enjoy “safe harbour” protection under Section 79 of the IT Act only if they comply with statutory obligations. If a platform knowingly allows prohibited content to remain accessible or fails to act promptly after receiving notice, it would expose the platform to direct liability for user-generated content. Regulators have flagged that AI chatbots and image generators can be used to produce content that would otherwise be illegal if created by humans, raising questions about accountability and platform responsibility.
By targeting X over Grok’s outputs, the government reinforces the principle that platforms cannot evade responsibility by attributing harmful material to automated systems. This development is important for technology companies operating in India. It shows the expectation that platforms deploying AI tools must build safeguards, monitor outputs, and respond swiftly to government directions.
2) UK Regulator Proposes New Rules on Google’s AI Search Features
Image Credits: Reuters
The UK’s Competition and Markets Authority (CMA) has published proposals that could change how Google uses online content for its AI-powered search features. The proposals are issued under the Digital Markets, Competition and Consumers Act and focus on Google’s “AI Overviews”, which generate automated summaries at the top of search results.
At the centre of the proposals is a requirement that Google must allow publishers to opt out of having their content used for AI-generated summaries and for training Google’s AI systems. Currently, publishers have limited control over how their content is repurposed by AI features, even though these summaries can reduce direct traffic to original websites. The CMA has said this raises concerns about fairness and bargaining power, especially for news organisations and smaller publishers.
The regulator has also proposed broader measures to improve transparency in Google Search. These include clearer explanations of how search rankings work and safeguards to ensure that Google does not favour its own services or AI tools over rival websites. The CMA believes that dominant search features powered by AI could distort competition if left unchecked.
Another key aspect of the proposals is user choice. The CMA wants to make it easier for users to select alternative search engines and reduce default bias toward Google services. This aligns with the UK’s wider digital competition framework, which aims to curb the market power of large technology firms designated as having “strategic market status”. The CMA has opened a public consultation on the proposals, which will run until 25 February 2026. Publishers, technology companies, consumer groups, and other stakeholders have been invited to submit their views.
If adopted, the measures would mark one of the most direct regulatory interventions into AI-driven search services in the UK. They also reflect a growing global trend of competition authorities stepping in where generative AI features affect market access, content rights, and user choice. For Google, the proposals signal increased scrutiny of how AI tools interact with existing competition and consumer protection laws.
3) Starlink Updates Privacy Policy to Allow User Data for AI Training
Image Credits: Reuters
SpaceX has updated the global privacy policy of its satellite internet service, Starlink, expanding how user data may be collected, used, and shared. Under the revised policy, Starlink can use certain categories of consumer data to train artificial intelligence systems and may also share this data with third parties, unless users actively opt out. The updated policy allows the use of information such as location data, account and payment details, and communications with customer support for AI development purposes. While SpaceX has stated that the changes are meant to improve services and develop new technologies, the move has raised concerns among privacy experts and digital rights groups.
Critics argue that satellite internet users often have limited alternatives, especially in remote or underserved regions. In such cases, consent through opt-out mechanisms may not be meaningful. There are also concerns about how broadly “AI training” is defined, and whether data collected for connectivity services should later be repurposed for advanced analytics or machine learning models.
The policy change is important in the context of Elon Musk’s broader technology ecosystem. SpaceX has close links with xAI, the company behind the Grok AI system, and the updated policy has fueled speculation about deeper data integration across Musk-owned platforms. Observers have also linked the move to SpaceX’s long-term commercial strategy, including the possibility of a future public listing, where clearer data monetisation pathways could appeal to investors.
From a regulatory perspective, the update highlights growing global tensions around data protection and AI governance. In many jurisdictions, regulators are increasingly questioning whether existing privacy laws adequately cover secondary uses of personal data for AI training. For users, the change places greater responsibility on individuals to review privacy settings and opt-out options. For regulators, it adds to the ongoing debate on how companies deploying AI should balance innovation with transparency, consent, and accountability in the use of personal data.