The Trickle-Down Effects of India’s Zero-Tax Push to Host Data Centres

As the global race to build artificial intelligence infrastructure intensifies, India will now offer foreign cloud providers a sweeping incentive: a tax holiday until 2047 on cloud services sold outside India, provided the underlying workloads run from Indian data centres. The move, announced by finance minister Nirmala Sitharaman during the Union Budget presentation, is aimed squarely at attracting the next wave of AI computing investment.

Global technology companies are heaping praise. Puneet Chandok, the president of Microsoft India and South Asia, says the proposal aligns with Microsoft’s long-term commitment to the country. “The Budget’s focus on data centres, cloud and AI infrastructure is significant. Long-term policy certainty recognises that digital infrastructure is now strategic national infrastructure,” he tells AIM.

While the tax holiday applies to cloud services provided to global customers using data centre services located in India, services provided to Indian customers would need to be routed through an Indian reseller entity. To reduce tax uncertainty, the government has also proposed a 15% safe-harbour margin for related Indian data centre service providers. This aims to reduce transfer pricing disputes and enhance certainty.

Boost to Global Investment, Data Centres

The incentive supports the government’s broader ambition to position India as a core digital infrastructure hub for Asia and beyond. By offering long-term tax certainty, the policy seeks to persuade hyperscalers such as Microsoft Azure, Amazon Web Services, and Google Cloud to treat India not merely as a consumption market, but as a base for global cloud operations.

Calling the Budget “strategic and long-term”, Arundhati Bhattacharya, president and CEO of Salesforce South Asia, says the tax holiday was a “masterstroke” in data sovereignty. She estimates it could attract up to $50 billion in data centre investment by 2030 while positioning India as the cloud hub for emerging markets.

Over the past year, global technology giants have already pledged billions towards AI hubs and data centres in India. 

Google has committed $15 billion to build an AI hub and expand data centre infrastructure—its largest investment in the country to date—following a $10 billion pledge in 2020. Amazon, meanwhile, has said it will invest an additional $35 billion by 2030, taking its total planned investment in India to about $75 billion as it scales both retail and cloud operations.

Microsoft is also expanding its hyperscale cloud and AI infrastructure in India. The company plans to invest $17.5 billion in India by 2029 to expand its AI and cloud footprint, including new data centres, core infrastructure, and training programmes. “Our efforts aim to support India’s transition from Digital Public Infrastructure to AI Public Infrastructure, enabling trusted, inclusive innovation with impact across the country,” Chandok notes.

Domestic players are also scaling up rapidly. In November, Digital Connexion—a joint venture focused on developing data centres and backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust—plans to invest $11 billion by 2030 in a 1-gigawatt, AI-focused data centre campus in Visakhapatnam, Andhra Pradesh. Spanning around 400 acres, the project is among the largest announced in India. Separately, the Adani Group laid out its plans last year to invest up to $5 billion alongside Google in an AI data centre project in the country.

According to the Economic Survey 2025–26, India’s installed data centre capacity is expected to expand sharply, from around 1.4 GW as of the second quarter of 2025 to nearly 8 GW by 2030. This growth is driven by rising data consumption, rapid cloud adoption, and the increasing use of AI, the Internet of Things, and 5G technologies.

By exempting global revenues earned from India-hosted cloud services, the policy is likely to accelerate investment across the data centre value chain, including infrastructure, cooling systems, networking equipment, and energy supply. It is also expected to boost ancillary sectors such as real estate for data parks, fibre connectivity, security operations, and edge computing.

Professor Balaraman Ravindran, head of data science and AI department at IIT Madras, notes the Budget promptly recognises the need for world-class computing infrastructure. “AI is not a single technology and has to be developed independently for each context and application. The Budget acknowledges this by provisioning for large-scale, high-quality compute to enable globally competitive AI development,” he tells AIM.

The Budget also includes measures to attract global professionals to India for longer periods. Sitharaman proposed exempting non-resident experts from tax on non-India-sourced income for up to five years under notified schemes, a move expected to benefit technology companies seeking specialised global talent.

Ripple Effects for Domestic Firms

While the primary beneficiaries of the tax holiday are global cloud giants, industry experts say the broader ecosystem also stands to gain. Indian data centre operators, construction firms, equipment suppliers, and service providers are expected to see sustained demand, alongside job creation and skill development.

Ritika Loganey Gupta, partner and GCC tax leader at EY India, notes that linking the incentive to services provided to Indian customers ensures the benefits trickle to domestic enterprises as well. “The measure strengthens India’s position as a globally competitive and sustainable data centre destination, while ensuring affordable and reliable digital infrastructure for Indian businesses,” she says.

Sunil Gupta, co-founder, managing director and CEO of Yotta Data Services, adds that the proposal would create complementarity rather than competition for sovereign Indian platforms. “As hyperscalers expand through Indian entities, demand for hyperscale, GPU-dense, AI-optimised infrastructure is expected to surge—an area where Indian operators with strong local execution and regulatory alignment are well placed,” he remarks.

For Indian SaaS firms, AI startups, and enterprises, deeper local cloud infrastructure could mean lower latency, better price performance, and easier compliance. Sharad Sanghi, co-founder and CEO of Neysa, observes that the Budget provides a predictable and enabling environment for enterprises to move from AI pilots to large-scale deployment.

Challenges Persist

Despite the ambitious push, experts caution that execution will be critical. Greater clarity is needed on transfer pricing rules, reseller structures and the interaction with international tax treaties. 

Infrastructure constraints also loom large. Patchy power availability, high electricity costs, and water scarcity could complicate the plans of rapidly scaling energy-intensive, AI-ready data centres, potentially slowing projects and raising operating costs.

Even so, the tax holiday marks one of India’s boldest policy bets yet—signalling that cloud computing and AI infrastructure are no longer seen as peripheral technologies, but as core pillars of long-term economic growth.