India AI data centre tax holiday has been introduced to attract foreign cloud and artificial intelligence investments into the country. The new incentive offers long-term tax exemptions to encourage global technology companies to expand infrastructure in India.
India AI data centre tax holiday aims to attract global cloud providers
India AI data centre tax holiday has emerged as a major policy initiative aimed at positioning the country as a global hub for artificial intelligence and cloud computing infrastructure. The Indian Government announced a 20-year tax exemption for foreign cloud service providers operating global services through data centres located within India, signalling a strategic effort to attract large-scale technology investments.
The measure was unveiled by Indian Finance Minister Nirmala Sitharaman during the presentation of the 2026–27 national Budget. Under the proposal, income generated from global cloud services delivered using India-based data centres will remain tax-exempt until 2047. However, services provided to domestic customers will continue to be routed through locally incorporated resellers and remain subject to India’s standard tax framework.
The India AI data centre tax holiday is designed to reduce operating costs for multinational cloud providers while enhancing investment certainty. The Budget also introduced a 15 percent cost-plus safe harbour framework for Indian data centre operators delivering services to related foreign entities. This framework is expected to minimise transfer-pricing disputes and provide regulatory clarity for cross-border technology operations.
Global technology firms have already shown strong interest in expanding AI and cloud infrastructure capacity in India. Google announced plans in October 2025 to invest 15 billion US dollars to build an artificial intelligence hub and expand data centre infrastructure, adding to its earlier 10 billion dollar investment commitment. Microsoft followed with an announcement in December 2025 outlining plans to invest 17.5 billion US dollars by 2029 to strengthen its AI and cloud footprint in India.
Amazon has also committed significant capital to the country’s digital infrastructure expansion. The company announced additional investment plans of 35 billion US dollars by 2030, increasing its total planned investment in India to approximately 75 billion US dollars. These investments highlight growing global confidence in India’s digital ecosystem and its expanding demand for cloud-based services.
Domestic investors are also increasing their participation in AI infrastructure development. Digital Connexion, a joint venture supported by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, announced plans to invest 11 billion US dollars by 2030 to develop a one-gigawatt AI-focused data centre campus in Andhra Pradesh. Similarly, the Adani Group revealed plans to invest up to 5 billion US dollars in partnership with Google to establish AI data centre facilities in the country.
Despite the strong investment pipeline, the rapid expansion of AI infrastructure presents several operational challenges. Power availability remains a critical concern, as data centres require reliable and continuous electricity supply to support energy-intensive computing workloads. Rising electricity costs and water resource constraints also present operational risks that could influence construction timelines and long-term operating expenses.
Industry research indicates that India’s data centre capacity is expected to expand significantly in the coming years. According to technology think tank Future Shift Labs, India’s data centre power capacity is projected to exceed two gigawatts by 2026, doubling from current levels. Capacity could further expand to more than eight gigawatts by 2030, supported by capital investments exceeding 30 billion US dollars.
Beyond cloud and AI infrastructure, India’s 2026–27 Budget also introduced expanded incentives for electronics and semiconductor manufacturing. The Government announced plans to launch a second phase of the India Semiconductor Mission, focusing on equipment manufacturing, domestic intellectual property development, and industry-led research and training initiatives. The move aims to strengthen India’s position in global semiconductor supply chains and reduce reliance on imported technology components.
Government spending under the Electronics Components Manufacturing Scheme has also been increased significantly, rising to INR 400 billion from INR 229.19 billion. The program provides production-linked incentives for companies manufacturing components used in smartphones, servers, and data centre equipment. Authorities confirmed that the scheme attracted investment commitments exceeding initial targets, highlighting strong industry participation.
Additional Budget measures include a five-year tax exemption for foreign companies supplying equipment and tooling to electronics manufacturers operating in bonded zones. The Government also introduced initiatives to strengthen rare-earth supply chains and simplify cross-border e-commerce regulations by removing the value cap per consignment on courier exports.
The India AI data centre tax holiday reflects the country’s broader strategy to strengthen its digital economy, enhance technology manufacturing capabilities, and attract global technology leaders. Analysts note that long-term tax incentives, combined with infrastructure investment and regulatory clarity, could accelerate India’s transformation into a major global computing infrastructure hub.
While operational challenges remain, the policy initiative demonstrates India’s commitment to building a competitive technology ecosystem capable of supporting the growing global demand for artificial intelligence and cloud computing services.