India offers zero taxes through 2047 to lure global cloud providers

On Sunday, India’s Finance Minister Nirmala Sitharaman announced a budget proposal offering foreign cloud providers zero taxes through 2047 on services sold outside the country, provided they run those workloads from Indian data centers. Sales to Indian customers must be routed through locally incorporated resellers and taxed domestically. Additionally, the budget proposes a 15% cost-plus safe harbor—a tax mechanism that establishes a fixed markup on costs to prevent transfer pricing disputes—for Indian data center operators providing services to related foreign entities.

The policy aims to capture capital inflows from global technology giants expanding their infrastructure footprint in Asia. Recent major investment commitments in India include:

• Google: Committed $15 billion to build an AI hub, following a $10 billion commitment in 2020.
• Microsoft: Plans to invest $17.5 billion by 2029 to expand its AI and cloud footprint.
• Amazon: Plans to invest an additional $35 billion by 2030, bringing its total planned commitment to about $75 billion.
• Digital Connexion: A joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, investing $11 billion to develop a 1-gigawatt campus spanning about 400 acres.
• Adani Group: Plans to invest up to $5 billion alongside Google in its AI data center project.

Analysts view the policy as a significant shift in how the country treats digital infrastructure. Rohit Kumar, founding partner of public policy and tech consulting firm The Quantum Hub, noted that the announcements signal data centers “are being treated as a strategic business sector rather than just back-end infrastructure.” Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs, called the tax holiday a “strategic bet on global Big Tech.” Vishnoi stated that India’s data center power capacity is projected to surpass 2 gigawatts by 2026 and could expand more than fivefold to exceed 8 gigawatts by 2030, driven by capital investments of more than $30 billion. However, analysts warn that actual execution remains tied to overcoming infrastructure hurdles like patchy power availability and water scarcity.

Beyond cloud infrastructure, the government is expanding incentives to deepen its role in global electronics supply chains. The budget raised the outlay for the Electronics Component Manufacturing Scheme to ₹400 billion (around $4.36 billion), up from ₹229.19 billion (about $2.50 billion). It also proposed a five-year tax exemption for foreign companies supplying equipment to electronics manufacturers operating in bonded zones—which are special economic areas—a move expected to benefit companies like Apple. To boost cross-border e-commerce, the government will also remove the ₹1 million (around $11,000) value cap per consignment on courier exports.

Why it matters

India is leveraging aggressive tax policy to secure its place in the global AI infrastructure race. The country is attempting to balance the need for massive foreign capital with domestic manufacturing goals, even as it faces significant energy and water constraints.