India courts Big Tech with long‑term tax breaks as it doubles down on AI ambitions

India has announced a 20-year tax exemption for hyperscalers that use data centers in the country to service global clients, in a move that could shift artificial intelligence-driven businesses to the South Asian country.

According to experts, cost of data center infrastructure is already low in India and coupled with the tax holiday it will make using data centers in India for global delivery more attractive for hyperscalers, compared to competing hubs including Singapore, UAE and Ireland.

Hyperscalers refer to cloud computing giants such as Amazon Web Services, Microsoft Azure and Google Cloud that are investing heavily in data center infrastructure that power AI models. 

“This proposal will significantly increase the hyperscaler demand and major foreign firms will now find India a significantly cheaper base for global workloads,” Riaz Thingna, partner, tax, regulatory and finance consulting at Grant Thornton Bharat, told CNBC.

This move positions India not just as a “consumption market” for data center demand but as a “global cloud computing and AI computing hub,” Thingna said, adding that currently hyperscalers face “corporate income tax exposure” if they have “significant economic presence” in India.

Currently, data center operations of foreign hyperscalers in India are considered permanent establishment and the profits arising from these operations are taxed at 35% plus surcharge and cess, explained Kumarmanglam Vijay, partner and head of practice-direct tax at legal firm JSA Advocates and Solicitors.

Now, cloud services provided by global hyperscalers using data centers owned and operated by a local developer will be exempt from tax until 2047, India’s Finance Minister Nirmala Sitharaman said during her budget speech on Sunday, adding that it will “boost investment in data centers.”

India’s role in the global AI race has been limited so far as it lacks strong local foundational models, chip manufacturing abilities and large data center capacities as compared to the U.S. and China.

The proposed tax holiday and the investment it is likely to bring could accentuate India’s role in global AI race at a time when the country is seeing increasing interest from tech behemoths that have announced billions in AI-related infrastructure investments.

India’s Electronics and Information Technology Minister Ashwini Vaishnaw said at the recently concluded World Economic Forum that India was “making very good progress” in all the five layers of AI architecture — applications, models, chip, infra and energy.

Apart from attracting hyperscalers, India has been doubling down on its AI ambitions by incentivizing semiconductor design and production companies to set up in the country.

The tax exemption is likely to benefit Indian IT and cloud service firms such as Infosys, Wipro, TCS, HCL Tech and Jio, according to experts, as well as local data center developers.

The tax holiday is “a positive sign for sustained, cost-effective capacity creation,” said Raju Vegesna, chairman at Indian data center developer Sify Technologies.

Google, which has entered into a partnership with AdaniConneX, to build a $15 billion data center at a new artificial intelligence hub in southern India, is likely to be among the big beneficiaries of the proposed tax holiday.

Last December, in under 24 hours, Microsoft and Amazon pledged more than $50 billion toward India’s cloud and AI infrastructure — details on local partners have not been shared by them.

Google and Microsoft did not immediately respond to CNBC’s requests for comments, while Amazon Web Services declined to comment.

Data center demand globally has surged in recent years, largely driven by the explosion in AI workloads, which require vast computing power, electrical power, cooling and networking infrastructure. More than $61 billion has flowed into the data center market so far in 2025.

India’s current data center capacity is around 1.2 gigawatts but the market is set to more than double, crossing 3 gigawatts within the next five years. According to a January report by real estate consultancy JLL, global data center capacity was 103 GW and is expected to double to 200GW by 2030 due to the AI boom.

The tax holiday for foreign cloud companies will remove “the single biggest friction point for global hyperscalers entering India,” said Anshuman Magazine, CEO of India, South-East Asia, Middle East & Africa at real estate consultancy CBRE.

Global capital inflows in India’s data center space will “increase substantially” he said, as the tax incentive gives a 20-year runway to earn return on investment.

As markets such as Japan, Australia, China and Singapore in the Asia Pacific region have matured, with, Singapore, one of the oldest data center hubs in the region, having limited room to deploy large-scale data centers due to land availability issues, India stands to gain, experts said.

The country has abundant space for large-scale data center developments. When compared with data center hubs in Europe, power costs in India are relatively low. Coupled with India’s growing renewable energy capacity — critical for power-hungry data centers — and the economics begin to look compelling.

The tax holiday for foreign cloud service firms could do for India’s cloud and data center ecosystem what the IT services incentives did in the early 2000s said S. Anjani Kumar, partner Deloitte India, adding that it will “catalyze large-scale global investment, expand export revenues, and lead to long-term job and capability creation.”