India Rolls Out Zero-Tax AI Strategy to Capture Global Cloud Demand

A bold fiscal play in the global AI infrastructure race

As competition intensifies to host the world’s next generation of artificial intelligence infrastructure, India is making a long-term fiscal bet. The country has unveiled a proposal to offer foreign cloud providers zero taxes until 2047 on revenues generated outside India—provided those AI and cloud workloads are operated from Indian data centers.

The initiative is designed to attract large-scale AI computing investments at a time when global technology giants are racing to expand data-center capacity. However, India’s ambition comes with challenges, including power constraints, rising electricity costs, and mounting water stress—factors that could complicate the rapid expansion of energy-intensive AI infrastructure.

Zero taxes on overseas cloud revenues

India’s finance minister Nirmala Sitharaman announced the proposal during the presentation of the country’s annual federal budget, positioning data centers as a strategic growth engine rather than mere backend infrastructure.

Under the plan, revenues from cloud services sold outside India would qualify for a tax holiday—effectively zero taxes—through 2047, as long as the services are delivered from data centers located within the country. Services sold to Indian customers, however, must be routed through locally incorporated resellers and taxed domestically.

The budget also introduced a 15% cost-plus safe harbour for Indian data-center operators that provide services to related foreign entities, a move intended to offer greater tax certainty and encourage cross-border investment.

Global tech giants accelerate investment

The announcement aligns with an aggressive expansion cycle by major U.S. cloud providers as they seek capacity to support surging AI workloads.

• Google said in October it would invest $15 billion to build an AI hub and expand data-center infrastructure in India—its largest commitment in the country to date—following a $10 billion pledge in 2020.

• Microsoft followed in December with plans to invest $17.5 billion by 2029, targeting new AI-focused data centers, cloud infrastructure, and workforce training.

• Amazon announced in December that it would invest an additional $35 billion by 2030, bringing its total planned investment in India to roughly $75 billion as it scales both retail and cloud operations.

India’s combination of engineering talent, fast-growing digital demand, and geopolitical positioning has increasingly made it an alternative to traditional data-center hubs in the U.S., Europe, and parts of Asia.

Domestic data-center expansion gains momentum

Local players are also scaling rapidly to meet both domestic and international demand.

In November, Digital Connexion—a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust—announced plans to invest $11 billion by 2030 in a 1-gigawatt, AI-focused data-center campus in Visakhapatnam, Andhra Pradesh. Spanning approximately 400 acres, the project is among the largest data-center developments announced in India.

Separately, Adani Group said in December it plans to invest up to $5 billion alongside Google in an AI data-center initiative within the country, reinforcing the growing involvement of large domestic conglomerates.

Infrastructure constraints remain a critical risk

Despite the momentum, scaling AI infrastructure in India faces structural hurdles. Patchy power availability, high electricity prices, and water scarcity pose significant risks for energy- and water-intensive data centers, potentially slowing construction timelines and increasing operational costs.

“The announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure,” said Rohit Kumar, founding partner of New Delhi-based public policy and technology consultancy The Quantum Hub.
The policy shift is likely to attract additional private capital and strengthen India’s position as a regional compute hub, he noted, although execution challenges related to power supply, land access, and state-level approvals remain.

A long-term bet on Big Tech

According to Sagar Vishnoi, co-founder and director of think tank Future Shift Labs, India’s installed data-center power capacity is expected to exceed 2 gigawatts by 2026, up from just over 1 gigawatt today. He projects capacity could expand more than fivefold to over 8 gigawatts by 2030, driven by capital investments exceeding $30 billion.

While the budget clearly signals India’s intent to accelerate cloud and digital infrastructure, Vishnoi described the tax-free window until 2047 as a “strategic bet on global Big Tech,” even as the country hopes to cultivate its own technology champions over the coming decades.

He also cautioned that requiring services to Indian customers to be routed through reseller entities could leave smaller domestic players operating on thin margins, rather than benefiting from comparable upstream incentives.

Electronics and semiconductor push deepens

Beyond cloud infrastructure, the budget reinforced India’s ambition to move higher up the electronics and semiconductor value chain.

The government announced a second phase of the India Semiconductor Mission, focused on:

• Manufacturing equipment and materials

• Developing full-stack domestic chip intellectual property

• Strengthening supply chains

• Supporting industry-led research and training centres

In parallel, the allocation for the Electronics Components Manufacturing Scheme was increased to ₹400 billion (approximately $4.36 billion), up from ₹229.19 billion (around $2.50 billion). Launched in April 2025, the program has already attracted investment commitments at more than double its original target.

The scheme reimburses a portion of production and investment costs for manufacturers of key components such as printed circuit boards, camera modules, connectors, and server hardware, with incentives tied to actual output rather than upfront subsidies.

Tax relief for global equipment suppliers

The budget also proposed a five-year tax exemption starting in April for foreign companies supplying equipment and tooling to electronics toll manufacturers operating in bonded zones. The measure is expected to benefit firms 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.

Rare earths and cross-border e-commerce reforms

Addressing vulnerabilities in critical minerals, the government pledged support for mineral-rich states including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to establish dedicated rare-earth corridors. The initiative builds on a seven-year incentive program approved in late 2025 aimed at boosting domestic production of rare-earth magnets amid tightening global supplies dominated by China.

To support exporters, the budget also removed the ₹1 million (around $11,000) value cap per consignment on courier exports. The change is expected to benefit small manufacturers, artisans, and startups selling globally via e-commerce platforms. The government also committed to streamlining the handling of rejected and returned shipments using digital tools.

A long-term vision with execution risks

Taken together, the latest budget measures underline India’s ambition to become a long-term hub for global technology infrastructure—spanning AI computing, electronics manufacturing, and critical minerals. The strategy seeks to capitalize on explosive AI demand and shifting global supply chains.

Whether India can convert generous policy incentives into durable leadership, however, will depend on execution: ensuring reliable power and water for data centers, maintaining regulatory consistency, and sustaining support for domestic innovation as global investors weigh their next moves in the AI era.

Author: Din Kumar