Union Finance Minister Nirmala Sitharaman and Union Finance Minister Pankaj Chaudhary and other non-finance officials before the presentation of Union Budget 2026-27 at Kartaviya Bhawan in New Delhi, India on February 1, 2026.
Hindustan Times | Hindustan Times | Getty Images
India has announced a 20-year tax holiday for hyperscalers that use data centers in the country to serve customers around the world, in a move that could move artificial intelligence-driven businesses to the South Asian country.
Experts say the already low cost of data center infrastructure in India, coupled with tax incentives, makes using Indian data centers for global distribution more attractive for hyperscalers compared to competing hubs such as 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 to power their AI models.
“This proposal will significantly increase the demand for hyperscalers, and large foreign companies will see India as a much cheaper hub for their global workloads,” Riaz Singha, partner in tax, regulatory and financial consulting at Grant Thornton Bharat, told CNBC.
The move positions India not only as a “consumer market” for data center demand, but also as a “global cloud computing and AI computing hub,” Shinna said, adding that hyperscalers could now face “corporate tax exposure” if they have a “significant economic presence” in India.
Currently, foreign hyperscalers’ data center operations in India are considered permanent establishments, and profits from these operations are subject to 35% surcharge and tax, said Kumarmangram Vijay, partner and head of direct tax practice at law firm JSA Advocates and Solicitors.
India’s Finance Minister Nirmala Sitharaman said in her Budget speech on Sunday that cloud services provided by global hyperscalers using data centers owned and operated by domestic developers will be tax exempt until 2047, adding that this will “facilitate investment in data centres”.
India’s role in the global AI race is limited because it lacks a strong local infrastructure model, chip manufacturing capabilities, and large-scale data center capabilities compared to the US and China.
The proposed tax incentives and the investments they will bring could underline India’s role in the global AI race, as the country attracts increased interest from large technology companies that have announced billions of dollars in AI-related infrastructure investments.
India’s Minister for Electronics and Information Technology Ashwini Vaishnau said at the recently concluded World Economic Forum that India is “making very good progress” in all five layers of the AI architecture: applications, models, chips, infrastructure and energy.
Apart from attracting hyperscalers, India is doubling down on its AI ambitions by encouraging semiconductor design and manufacturing companies to set up in the country.
tax leave
This tax exemption is likely to benefit Indian IT and cloud services companies. infosys, wipro, TCS, HCL Tech So is Jio, according to experts and local data center developers.
Raju Bejesna, chairman of Indian data center developer SciFi Technologies, said the tax incentives are “a positive sign for sustainable and cost-effective capacity creation.”
Google, which entered into a partnership with AdaniConneX to build a $15 billion data center in a new artificial intelligence hub in southern India, is likely to be one of the big beneficiaries of the proposed tax breaks.
Last December, Microsoft and Amazon pledged more than $50 billion for cloud and AI infrastructure in India within 24 hours, but details of local partners were not shared by the companies.
Google and Microsoft did not immediately respond to CNBC’s requests for comment, while Amazon Web Services declined to comment.
In recent years, demand for data centers has increased rapidly around the world. This is primarily due to the explosive growth of AI workloads, which require vast amounts of computing power, power, cooling, and network infrastructure. More than $61 billion will flow into the data center market by 2025.
Server room in a data center in India.
Dheeraj Singh | Bloomberg | Getty Images
opportunities for india
India’s current data center capacity is around 1.2 GW, but the market is expected to more than double to over 3 GW within the next five years. According to a January report from real estate consultancy JLL, global data center capacity stands at 103GW and is expected to double to 200GW by 2030 due to the AI boom.
Anshuman Magazine, CEO of India, Southeast Asia, Middle East and Africa at real estate consultancy CBRE, said tax incentives for foreign cloud companies would eliminate “the single biggest friction point for global hyperscalers coming into India”.
He said global capital inflows into India’s data center sector will “significantly increase” as tax incentives provide a grace period of 20 years to get a return on investment.
As Asia-Pacific markets such as Japan, Australia, China and Singapore mature, India stands to benefit as land availability issues limit space for large-scale data centers in Singapore, one of the oldest data center hubs in the region, experts said.
The country has plenty of space for large-scale data center development. Compared to data center hubs in Europe, electricity costs in India are relatively low. Coupled with India’s growing renewable energy capacity (vital for power-hungry data centers), the economics are starting to look compelling.
S. Anjani Kumar, partner at Deloitte India, said tax incentives for foreign cloud services companies could have a similar effect on India’s cloud and data center ecosystem, similar to the IT services incentives of the early 2000s, adding: “It will spur large-scale global investments, boost export revenues and lead to long-term job and capacity creation.”
