India courts Big Tech with long‑term tax breaks as it doubles down on AI ambitions
Union Finance Minister Nirmala Sitharaman with Union Minister of State for Finance Pankaj Chaudhary and other officials outside the Ministry of Finance before the presentation of the Union Budget 2026-27 at Kartavya Bhavan in New Delhi, India, on February 1, 2026.
Hindustan Times | Hindustan Times | Getty Images
India has announced a 20-year tax exemption for hyperscalers that use data centers in the country to serve global customers, in a move that could shift AI-focused businesses to the South Asian country.
According to experts, the cost of data center infrastructure in India is already low and the addition of a tax holiday will make data centers in India more attractive to hyperscalers for global delivery compared to rival centers such as Singapore, UAE and Ireland.
Hyperscalers refer to cloud computing giants such as Amazon Web Services, Microsoft Azure and Google Cloud that invest heavily in data center infrastructure that supports AI models.
“This offering will significantly increase hyperscaler demand and large foreign firms will now see India as a significantly cheaper base for their global workloads,” Riaz Thingna, partner at Grant Thornton Bharat and expert in tax, regulatory and finance consulting, told CNBC.
The move positions India not only as a “consumption market” for data center demand but also as a “global cloud computing and AI computing hub”, Thingna said, adding that currently hyperscalers face “corporate income tax exposure” if they have a “significant economic presence” in India.
Kumarmanglam Vijay, partner and head of direct practice tax at law firm JSA Advocates and Solicitors, explained that currently, data center operations of foreign hyperscalers in India are considered permanent establishment and profits from these operations are taxed at 35% plus surcharge and withholding tax.
Cloud services provided by global hyperscalers using data centers owned and operated by a local developer will now be tax-free until 2047, Indian Finance Minister Nirmala Sitharaman said in her budget speech on Sunday, adding that this would “increase investment in data centres”.
India’s role in the global AI race has been limited so far as it lacks strong domestic base models, chip manufacturing capabilities and large data center capacities compared to the US and China.
The proposed tax holiday and the investment it is likely to bring could highlight India’s role in the global AI race at a time when there is growing interest from tech giants who have announced billions of dollars in investments in AI-related infrastructure.
Ashwini Vaishnaw, India’s Minister of Electronics and Information Technology, said at the recently concluded World Economic Forum that India has “made very good progress” in all five layers of the AI architecture – applications, models, chip, infrastructure and energy.
Apart from attracting hyperscalers, India is doubling down on its AI ambitions by encouraging the establishment of semiconductor design and manufacturing companies in the country.
tax holiday
The tax exemption is expected to benefit Indian IT and cloud service companies. infosys, Wipro, TCS, HCL Technology According to experts as well as local data center developers, Jio and Jio.
Raju Vegesna, chairman of Indian data center developer Sify Technologies, said the tax holiday was a “positive sign for continued, cost-effective capacity creation.”
Google, which has partnered with AdaniConneX to build a $15 billion data center at a new AI hub in southern India, is likely to be among the biggest beneficiaries of the proposed tax holiday.
Last December, in less than 24 hours, Microsoft and Amazon pledged more than $50 billion towards India’s cloud and AI infrastructure; Details regarding local partners were not shared by them.
Google and Microsoft did not immediately respond to CNBC’s requests for comment, while Amazon Web Services declined to comment.
Data center demand has increased globally in recent years; This has been driven largely by the explosion of AI workloads that require massive computing power, electrical power, cooling and network infrastructure. More than $61 billion has flowed into the data center market so far in 2025.
A server room in a data center in India.
Dhiraj Singh | Bloomberg | Getty Images
india opportunity
India’s current data center capacity is around 1.2 gigawatts, but the market is expected to more than double to more than 3 gigawatts in the next five years. According to real estate consultancy JLL’s report in January, global data center capacity was 103 GW and this capacity is expected to reach 103 GW. couple To 200 GW by 2030 due to the AI boom.
Anshuman Magazine, CEO for India, Southeast Asia, Middle East and Africa at real estate consultancy CBRE, said the tax holiday for foreign cloud companies will remove the “biggest friction point for global hyperscalers entering India”.
He said global capital inflows into India’s data center space will “grow significantly” as the tax incentive provides a 20-year path to generate returns on investment.
Experts said India is poised to gain as markets in the Asia Pacific region such as Japan, Australia, China and Singapore mature and Singapore, one of the oldest data center hubs in the region, has limited space for deployment of large-scale data centers due to land availability issues.
The country has plenty of space for large-scale data center developments. Compared to data center hubs in Europe, energy costs in India are relatively low. Combined with India’s growing renewable energy capacity (critical for power-hungry data centres), the economics are starting to look attractive.
S. Anjani Kumar, partner at Deloitte India, said a tax holiday for foreign cloud services companies could do for India’s cloud and data center ecosystem what IT services incentives did in the early 2000s, adding that it would “catalyze large-scale global investment, boost export revenues and lead to long-term job and talent creation.”
