India offers tax exemption until 2047 to attract global AI workloads

As the global race to build AI infrastructure accelerates, India has offered foreign cloud providers no taxes until 2047 on services sold outside the country if they run such workloads from Indian data centers — an attempt to attract the next wave of investment in AI computing, even as power shortages and water stress threaten to expand into the South Asian nation.

Indian Finance Minister Nirmala Sitharaman, Sunday Announce (PDF) The proposal in the country’s annual budget, which offers a tax break – effectively zero taxes – on revenue from cloud services sold outside India if those services are operated from data centers in the country. She told Parliament that sales to Indian customers should be routed through locally incorporated vendors and taxed locally. The Budget also proposes to provide a 15% cost-effective safe harbor to Indian data center operators providing services to relevant foreign entities.

The announcement comes as US cloud giants, including Amazon, Google and Microsoft, race to add data center capacity around the world to support the increase in AI workloads, with India emerging as an increasingly attractive location for new investments. Offering a large pool of engineering talent and growing demand for cloud services, the country has positioned itself as a major alternative to the United States, Europe and parts of Asia for expanding computing infrastructure.

In October, Google said it would do so Investment of 15 billion dollars To build an AI hub and expand data center infrastructure in India, its largest commitment in the country to date, yet $10 billion commitment in 2020. Microsoft followed up in December with plans to do so An investment of $17.5 billion By 2029 to expand its AI and cloud footprint, and fund new data centres, infrastructure and training programmes. Amazon also ramped up its spending in December, saying it would invest a sum An additional $35 billion in India by 2030, bringing its total planned commitment to approximately US$75 billion while expanding its retail and cloud operations.

India’s domestic data center sector is also intensifying its efforts to meet global demand. In November, Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, said it would do so. An investment of $11 billion By 2030 to develop a 1 GW AI-focused data center in the southern state of Andhra Pradesh. The project, spread over 400 acres in Visakhapatnam, is among the largest announced in India and underscores the growing interest from local and global investors in building AI-ready infrastructure in the country. Separately, Adani Group said in December that it was planning to do so Invest up to $5 billion Along with Google in an AI data center project in the country.

However, it may be difficult to increase the capacity of data centers in India, given irregular power availability, high electricity costs, and water scarcity. Main limitations For power-intensive AI workloads. These challenges can slow down the build process and raise operating costs for cloud providers.

“The announcements about data centers suggest that they are being treated as a strategic business sector and not just back-end infrastructure,” said Rohit Kumar, co-founder of New Delhi-based The Quantum Hub, a public policy and technology consulting firm. This drive is likely to attract more private investment and strengthen India’s position as a regional data and computing hub, although implementation challenges related to power availability, access to land, and permits at the state level remain, he added.

India’s data center power capacity is expected to exceed 2 gigawatts by 2026, from just over 1 gigawatt currently, and could expand more than five-fold to exceed 8 gigawatts by 2030, driven by capital investments of more than $30 billion, said Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs. While the Budget signals a clear intention to accelerate digital infrastructure and cloud computing, Vishnoi said allowing foreign cloud companies to earn tax-free profits until 2047 reflects a “strategic bet on major global technology companies”, even as India has the potential to produce its own technology champions over the next two decades.

He added that routing services for Indian users through resale entities could leave smaller local players competing on thin profit margins, rather than getting similar incentives.

The federal budget also boosted incentives to deepen India’s role in electronics and semiconductor manufacturing, as the country seeks to move beyond the assembly stage and capture more value in global supply chains. The Finance Minister said that the federal government will launch a second phase of the India Semiconductor Mission, which focuses on producing equipment and materials, developing full-fledged indigenous chip intellectual property, and strengthening supply chains, while supporting industry-led research and training centers to build a skilled workforce.

In addition, the Indian government raised spending on the electronic components manufacturing scheme to 400 billion rupees (about $4.36 billion), from 229.19 billion rupees (about $2.50 billion), after the program — which was launched in April 2025 — attracted investment commitments more than double its original target, Sitharaman said.

This scheme provides incentives linked to increased production and investment, while offsetting a portion of the costs to companies that manufacture key components such as printed circuit boards, camera modules, connectors, and other parts used in smartphones, servers, and data center equipment. By linking payments to actual output rather than upfront subsidies, the program is designed to draw global suppliers deeper into India’s electronics supply chain and reduce reliance on imported components — a long-standing criticism of the country’s manufacturing push.

Besides increasing spending allocations for the electronics components programme, the federal budget also proposed a five-year tax holiday starting in April for foreign companies that supply equipment and tools to electronics duty manufacturers operating in customs territories. This change is likely to benefit companies including Apple, which relies heavily on contract manufacturing in India, as it was previously reported. It sought clarification from New Delhi Regarding the tax treatment of advanced iPhone production equipment provided to its partners.

The Budget also sought to address vulnerabilities in critical minerals, such as in India Struggle with Tightening global supplies of rare earth materials Used in electric vehicles, electronic devices and defense systems. The finance minister said the federal government would support mineral-rich states including Odisha, Kerala, Andhra Pradesh and Tamil Nadu in creating dedicated rare earth corridors to promote mining, processing, research and manufacturing. This step is based on a Seven-year incentive program It was approved in late 2025 to boost domestic production of rare earth magnets, as access to supplies from China – which dominates global production – becomes more restricted.

Beyond AI infrastructure and electronics manufacturing, the Indian government has also moved to boost cross-border e-commerce, with the aim of helping small businesses tap into global demand. The finance minister said the current cap on the value of INR 1 million (about US$11,000) per courier export shipment will be removed, a move expected to benefit small manufacturers, artisans and startups selling abroad through online platforms. Sitharaman said the federal government would simplify handling of rejected and returned shipments using technology, addressing a long-standing bottleneck for exporters.

Overall, the latest actions underscore India’s ambition to position itself as a long-term hub for global technology infrastructure, which includes cloud computing, electronics manufacturing, and critical minerals. The strategy aims to benefit from the growing demand for artificial intelligence and the transformation of supply chains. However, its success will hinge on execution – from reliably providing power and water to data centers to sustained support for local innovation – as global companies and investors consider whether India can translate political incentives into lasting leadership in the age of artificial intelligence.