India offers 20-year tax holiday for AI and cloud data centres

India has offered foreign cloud service providers a 20-year tax holiday running until 2047 on revenues earned from services sold outside the country, provided those services are delivered using data centres located in India, as New Delhi moves to attract large-scale investment in artificial intelligence (AI) and cloud infrastructure.

Indian Finance Minister Nirmala Sitharaman announced the measure in the 2026-27 Budget, saying income from global cloud services operated out of Indian data centres would be exempt from tax for more than two decades. Services sold to Indian customers would continue to be routed through locally incorporated resellers and taxed domestically.

The Budget also proposes a 15% cost-plus safe harbour for Indian data-centre operators providing services to related foreign entities, aimed at reducing transfer-pricing disputes and offering greater tax certainty for multinational cloud providers.

The measures come as global technology companies expand data-centre capacity to support rising AI workloads. India has positioned itself as an alternative location for compute infrastructure, citing its engineering talent base and growing domestic demand, even as competition intensifies across the US, Europe, and parts of Asia.

Several US technology firms have announced significant commitments. 

Google said in October 2025 it would invest $ 15 billion to build an AI hub and expand data-centre infrastructure in India, following a $ 10 billion commitment in 2020. Microsoft announced in December 2025 plans to invest $ 17.5 billion by 2029 to expand its AI and cloud footprint, while Amazon said it would invest an additional $ 35 billion by 2030, taking its total planned investment in India to about $ 75 billion.

Domestic investment is also rising. In November 2025, Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, said it would invest $ 11 billion by 2030 to develop a 1-gigawatt AI-focused data-centre campus in Andhra Pradesh. Adani Group said in December 2025 it plans to invest up to $ 5 billion alongside Google in an AI data-centre project in the country.

However, scaling up capacity remains constrained by power availability, electricity costs, and water stress, all of which are critical inputs for energy-intensive AI workloads and could affect construction timelines and operating costs.

According to think tank Future Shift Labs, India’s data-centre power capacity is projected to exceed 2 gigawatts by 2026, up from just over 1 gigawatt currently, and could rise to more than 8 gigawatts by 2030, driven by capital investment of over $ 30 billion. 

Beyond cloud and AI infrastructure, the Budget also expanded incentives for electronics and semiconductor manufacturing. The Indian Government said it would launch a second phase of the India Semiconductor Mission, focusing on equipment and materials production, domestic chip intellectual property, and industry-led research and training centres.

Spending under the Electronics Components Manufacturing Scheme has been increased to INR 400 billion from INR 229.19 billion, after the program attracted investment commitments exceeding its original targets. The scheme links incentives to incremental production and investment, covering components used in smartphones, servers, and data-centre equipment.

The Budget also proposed a five-year tax exemption from April for foreign companies supplying equipment and tooling to electronics manufacturers operating in bonded zones, and announced measures to strengthen rare-earth supply chains and ease cross-border e-commerce by removing the INR 1 million value cap per consignment on courier exports.