India is offering foreign cloud providers a major new incentive to run AI and other computing workloads from inside the country, proposing zero taxes through 2047 on revenues from cloud services sold outside India if those services are delivered from Indian data centers. Finance minister Nirmala Sitharaman announced the plan in Sunday’s annual federal budget, positioning the tax holiday as part of a broader push to attract global AI infrastructure investment.
Under the proposal, foreign firms would be able to earn export revenue tax-free as long as the underlying workloads are operated from Indian facilities. Sales to Indian customers, however, would need to go through locally incorporated resellers and would be taxed domestically. The budget also includes a 15% cost-plus safe harbour for Indian data-center operators providing services to related foreign entities, a measure designed to give multinationals more certainty around transfer pricing.
The timing reflects the surge in global spending on AI compute. U.S. hyperscalers including Amazon, Google, and Microsoft are racing to add capacity worldwide, and India has become an increasingly attractive destination thanks to its engineering talent pool and growing cloud demand. Google said in October it would invest $15 billion to expand AI and data-center infrastructure in India, while Microsoft followed in December with plans to invest $17.5 billion by 2029. Amazon has also said it will invest an additional $35 billion in India by 2030, bringing its total planned commitment to about $75 billion.
Domestic players are scaling up as well. Digital Connexion — backed by Reliance Industries, Brookfield, and Digital Realty — announced plans to invest $11 billion by 2030 in a 1-gigawatt AI-focused data center campus in Andhra Pradesh. Adani Group has also said it plans to invest up to $5 billion alongside Google in an AI data-center project.
Still, the country faces real constraints. Power availability remains uneven, electricity costs can be high, and water scarcity poses challenges for energy-intensive AI workloads. Analysts say these bottlenecks could slow construction and raise operating costs even as policy incentives grow more aggressive.
Rohit Kumar of The Quantum Hub said the budget signals India is treating data centers as a strategic sector rather than back-end infrastructure, though execution hurdles around land access, state clearances, and reliable power remain. Future Shift Labs’ Sagar Vishnoi projected India’s data-center power capacity could rise above 2 gigawatts by 2026 and exceed 8 gigawatts by 2030, driven by more than $30 billion in capital investment, but warned the tax-free approach represents a long-term bet on global Big Tech.
The budget also expanded incentives in electronics and semiconductor manufacturing, increasing the outlay for the Electronics Components Manufacturing Scheme to ₹400 billion and launching a second phase of the India Semiconductor Mission focused on equipment, materials, and domestic chip IP. Additional measures included tax exemptions for foreign suppliers of tooling in bonded zones and new efforts to secure critical minerals such as rare earths.
Taken together, the proposals underscore India’s ambition to become a long-term hub for global AI infrastructure and technology supply chains. Whether the strategy delivers will depend not just on tax incentives, but on the country’s ability to build the power, water, and regulatory foundations needed to support the next wave of data-center growth.
This analysis is based on reporting from TechCrunch.
Image courtesy of Unsplash.
This article was generated with AI assistance and reviewed for accuracy and quality.
