India has unveiled a sweeping tax holiday aimed squarely at the next wave of artificial intelligence computing. Foreign cloud providers that run export-facing workloads from data centers located in India will pay zero taxes on those revenues through 2047, a powerful lure as hyperscalers race to add capacity for AI training and inference.
Announced in the national budget, the measure is crafted to pull high-value AI workloads onto Indian soil without sacrificing domestic tax receipts. Services sold to Indian customers must still be routed through locally incorporated resellers and taxed in-country, while a 15% cost-plus safe harbour is proposed for Indian data center operators serving related foreign entities.
- How the AI-focused tax holiday operates for cloud exports
- Why AI training and inference workloads are targeted
- Investment signals and commitments from global cloud giants
- Infrastructure hurdles: power, water, land and connectivity
- Implications for domestic cloud and data center players
- What to watch next as India courts export-led AI compute
How the AI-focused tax holiday operates for cloud exports
The policy exempts profits from cloud services delivered to overseas clients when the compute runs in Indian facilities. Structurally, it resembles earlier export-oriented regimes that helped software services flourish, but it updates the playbook for AI-era infrastructure by targeting compute-intensive data center operations rather than just software delivery.
Two guardrails stand out. First, the reseller requirement preserves domestic taxation for Indian end users, limiting base erosion. Second, the 15% safe harbour gives multinationals a clearer transfer pricing anchor for captive or related data center units, reducing disputes and speeding up investment decisions.
Budget documents from the Ministry of Finance frame the move as part of a broader push to position India as a global compute hub. Policy analysts note this formally elevates data centers from back-end utilities to a strategic sector, with incentives calibrated to export earnings and capital intensity.
Why AI training and inference workloads are targeted
AI demand is exploding across training and inference, and location matters. Hyperscalers increasingly build regional clusters to meet latency needs, manage data sovereignty, and diversify energy sources. According to the International Energy Agency, data center electricity consumption is on a sharp upward trajectory, driven in part by AI, pushing operators to seek markets with scale, talent, and policy stability.
India checks several boxes: deep engineering talent, a rising cloud customer base, and large tracts of land near submarine cable landing stations in Mumbai, Chennai, and the east coast. Synergy Research and other industry trackers count hundreds of hyperscale campuses worldwide; enticing AI-specific build-outs in India could shift that map, especially as chip availability normalizes and GPU clusters are deployed closer to demand.
Investment signals and commitments from global cloud giants
Global providers were already ramping before the incentive. Google outlined a $15 billion plan to expand data center infrastructure and an AI hub in India. Microsoft announced up to $17.5 billion by 2029 for AI and cloud expansion, spanning facilities and workforce development. Amazon lifted its total planned India commitment by pledging an additional $35 billion by 2030 across retail and cloud.
Domestic capacity is rising in parallel. Digital Connexion—a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty—has proposed a 1-gigawatt AI-focused campus in Visakhapatnam. Adani has signaled up to $5 billion alongside Google for AI data infrastructure. Industry forecasts cited by think tanks such as Future Shift Labs suggest India’s installed data center power could surpass 2 gigawatts mid-decade and exceed 8 gigawatts by 2030 if capital flows persist.
Infrastructure hurdles: power, water, land and connectivity
Execution will decide whether the tax holiday translates into compute at scale. AI clusters draw concentrated power; a single campus can require 50–100 megawatts or more. The Central Electricity Authority has mapped tight reserve margins in several states, and grid congestion around urban hubs can slow timelines and raise costs. Many operators are pairing capacity plans with captive solar and wind through open-access frameworks, plus on-site batteries and gas peakers to firm supply.
Water is another constraint, particularly for legacy evaporative cooling. Uptime Institute estimates that data centers can consume millions of liters annually, and research from U.S. universities has highlighted the water intensity of large model training. Operators in India are moving to air-cooled designs, liquid cooling for high-density racks, and, in coastal locations, desalination, but siting choices will remain sensitive to local water stress.
Cable connectivity and land acquisition add complexity. Coastal states offer proximity to subsea cables and potential for green power integration, yet permitting and right-of-way coordination across state and municipal authorities can elongate project cycles. Clarity on interconnection standards and expedited clearances will be pivotal.
Implications for domestic cloud and data center players
The reseller clause ensures Indian customers continue to generate domestic tax receipts, but it could also compress margins for smaller local intermediaries if upstream incentives disproportionately favor foreign cloud owners. At the same time, the 15% safe harbour offers Indian data center operators working with related parties a cleaner compliance path, potentially lowering the cost of capital.
Complementary moves in the budget—such as expanded incentives for electronic components and a new phase of the India Semiconductor Mission—reinforce the supply-side narrative. If executed in tandem, AI-ready data centers, component manufacturing, and chip design support could reduce import dependence and deepen local value capture over the decade.
What to watch next as India courts export-led AI compute
Key indicators will surface quickly: the pace of land acquisitions and power purchase agreements, the share of renewable energy in contracted loads, the density of GPU clusters deployed per site, and actual export revenue booked under the new regime. Guidance from the Central Board of Direct Taxes on safe harbour implementation and reseller rules will also shape deal structures.
Policy experts, including leaders at The Quantum Hub and Future Shift Labs, argue the intent is clear—treat compute as strategic infrastructure and compete globally for AI workloads. Whether zero taxes through 2047 proves transformative will depend on how fast India can align grid upgrades, water stewardship, and permitting with the capital now lining up at the door.
