India offers zero taxes through 2047 to lure global AI workloads

As competition intensifies worldwide to build out artificial intelligence infrastructure, India has unveiled a sweeping tax incentive aimed at drawing international cloud and AI workloads to its shores. The government has proposed offering foreign cloud providers a full tax exemption through 2047 on revenues from services sold outside India, provided those workloads are operated in Indian data centres. The move is designed to position India as a significant destination for AI computing investment, even as challenges around electricity supply and water availability loom large.

On Sunday, India’s finance minister Nirmala Sitharaman introduced the proposal as part of the country’s annual federal budget, outlining a tax holiday that would effectively eliminate taxes on export revenues from cloud services run out of India. Under the plan, cloud services sold to customers outside India would qualify for the exemption. In contrast, services sold domestically would need to be routed through locally incorporated reseller entities and taxed under Indian law, Sitharaman told parliament. The budget also proposes a 15% cost-plus safe-harbour framework for Indian data centre operators that provide services to related foreign entities.

The announcement comes as U.S.-based cloud heavyweights such as Amazon, Google, and Microsoft race to expand data centre capacity globally to meet surging demand for AI workloads. India has emerged as a compelling option in that expansion, offering a vast pool of engineering talent, rising domestic cloud demand, and a strategic alternative to the U.S., Europe, and other parts of Asia for scaling compute infrastructure.

In October, Google said it would invest $15 billion in India to build an AI hub and expand its data centre footprint, marking its most significant investment commitment in the country to date and following a $10 billion pledge made in 2020. Microsoft followed in December with plans to invest $17.5 billion by 2029 to expand its AI and cloud presence, including funding for new data centres, infrastructure development, and training initiatives. Amazon has also increased its spending, announcing in December that it would invest an additional $35 billion in India by 2030, bringing its total planned investment to roughly $75 billion as it expands both its retail and cloud businesses.

India’s domestic data-centre industry is also scaling up rapidly to meet anticipated global demand. In November, Digital Connexion — a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust — said it plans to invest $11 billion by 2030 to build a 1-gigawatt, AI-focused data-centre campus in the southern state of Andhra Pradesh. The project, spanning roughly 400 acres in Visakhapatnam, ranks among the most significant data centre developments announced in India and highlights growing interest from both local and international investors in AI-ready infrastructure. Separately, in December, the Adani Group said it plans to invest up to $5 billion alongside Google in an AI data centre project in the country.

Still, the rapid expansion of data-centre capacity in India faces notable constraints. Inconsistent power availability, elevated electricity costs, and increasing water scarcity remain key concerns for energy-intensive AI operations. These issues could delay construction timelines and increase operating expenses for cloud providers considering large-scale deployments.

“The announcements around data centres suggest they are being treated as a strategic sector rather than just back-end infrastructure,” said Rohit Kumar, founding partner at New Delhi-based public policy and technology consulting firm The Quantum Hub. He said the measures are likely to draw greater private investment and reinforce India’s position as a regional hub for data and computing. However, execution challenges — including access to power, land availability, and state-level regulatory approvals — remain significant.

Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs, said India’s installed data-centre power capacity is expected to exceed 2 gigawatts by 2026, up from just over 1 gigawatt today, and could grow more than fivefold to surpass 8 gigawatts by 2030. That expansion would be driven by capital investments of more than $30 billion, he said. While the budget signals a strong intent to accelerate cloud computing and digital infrastructure, Vishnoi noted that allowing foreign cloud providers to earn profits tax-free until 2047 represents a “strategic bet on global Big Tech,” even as India could develop its own technology champions over the next two decades.

He added that the requirement to route services sold to Indian customers through reseller entities could leave smaller domestic firms competing on thin margins, rather than benefiting from comparable upstream incentives.

Beyond AI infrastructure, the federal budget expanded incentives to strengthen India’s position in electronics and semiconductor manufacturing, as the government seeks to move beyond assembly-focused production and capture greater value within global supply chains. Sitharaman said the government would launch a second phase of the India Semiconductor Mission, with a focus on producing equipment and materials, developing full-stack domestic chip intellectual property, and reinforcing supply chains. The initiative would also support industry-led research programs and training centres to build a skilled workforce.

In addition, the government increased funding for the Electronics Components Manufacturing Scheme to ₹400 billion (approximately $4.36 billion), up from ₹229.19 billion (around $2.50 billion). The program, launched in April 2025, has already attracted investment commitments exceeding twice its initial target, according to the finance minister.

The scheme offers incentives tied to incremental production and investment, reimbursing a portion of costs for companies that manufacture critical components, including printed circuit boards, camera modules, connectors, and other parts used in smartphones, servers, and data centre equipment. By linking incentives to actual output rather than upfront subsidies, the program aims 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.

Alongside expanded electronics incentives, the budget also proposed a five-year tax exemption, effective April, for foreign firms supplying equipment and tooling to electronics toll manufacturers operating in bonded zones. The change is expected to benefit companies such as Apple, which relies heavily on contract manufacturing in India and has previously sought clarity on the tax treatment of high-end production equipment supplied to its manufacturing partners.

The budget also addressed vulnerabilities in critical minerals, as India faces tightening global supplies of rare-earth materials used in electric vehicles, electronics, and defence systems. Sitharaman said the federal government would support mineral-rich states, including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu, by establishing a dedicated rare-earth corridor for mining, processing, research, and manufacturing. The initiative builds on a seven-year incentive program approved in late 2025 to boost domestic production of rare-earth magnets, as access to supplies from China — which dominates global output — has become increasingly constrained.

Beyond technology infrastructure and manufacturing, the government also moved to strengthen cross-border e-commerce. Sitharaman said the existing ₹1 million (around $11,000) per-consignment value cap on courier exports would be removed, a change expected to benefit small manufacturers, artisans, and startups selling overseas through online platforms. The government also plans to streamline the handling of rejected and returned shipments using technology, addressing a long-standing pain point for exporters.

Taken together, the latest budget measures underscore India’s ambition to position itself as a long-term hub for global technology infrastructure, spanning cloud computing, electronics manufacturing, and critical minerals. While the strategy seeks to capitalise on emerging AI demand and shifting supply chains, its success will ultimately depend on execution—from ensuring reliable power and data centres to sustaining support for domestic innovation—as global companies and investors assess whether India can translate policy incentives into lasting leadership in the AI era.