India Announces Tax-Free Incentives Through 2047 to Attract Global AI Infrastructure Investment

In a strategic move to position itself as a global hub for artificial intelligence infrastructure, India has unveiled an unprecedented tax incentive package aimed at attracting foreign cloud service providers. The initiative, announced during the annual budget presentation, offers zero taxation through 2047 on revenues generated from cloud services operated within Indian data centers but sold to customers outside the country.

Finance Minister Nirmala Sitharaman outlined the proposal in parliament, specifying that while international service revenues would enjoy complete tax exemption, services sold to Indian customers must be channeled through locally incorporated resellers and subject to domestic taxation. The budget framework also introduces a 15% cost-plus safe harbor provision for Indian data center operators providing services to affiliated foreign entities.

Major Cloud Providers Accelerate Indian Investments

The announcement arrives amid aggressive expansion efforts by leading U.S. hyperscalers seeking to scale global data center capacity for AI workloads. India has emerged as a strategically attractive destination, offering substantial engineering talent pools, expanding cloud service demand, and positioning as a viable alternative to traditional infrastructure hubs in North America, Europe, and Asia.

Recent major commitments include:

• Google's $15 billion investment announced in October to establish an AI hub and expand data center infrastructure, representing its largest single commitment in the country, supplementing a prior $10 billion pledge from 2020
• Microsoft's $17.5 billion investment plan through 2029 to expand AI and cloud infrastructure, including new data centers and workforce training initiatives
• Amazon's additional $35 billion commitment through 2030, elevating total planned investment to approximately $75 billion across retail and cloud operations

Domestic Infrastructure Development Gains Momentum

India's indigenous data center sector is scaling rapidly to accommodate global demand. Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, announced an $11 billion investment through 2030 to develop a 1-gigawatt AI-focused data center campus spanning approximately 400 acres in Visakhapatnam, Andhra Pradesh. This represents one of the largest infrastructure projects announced in the region.

Additionally, Adani Group disclosed plans to invest up to $5 billion in collaboration with Google on AI data center development within the country.

Infrastructure Challenges and Constraints

Despite ambitious plans, significant operational challenges remain. Inconsistent power availability, elevated electricity costs, and water scarcity present critical constraints for energy-intensive AI workloads. These factors could potentially impede construction timelines and increase operational expenditures for cloud infrastructure providers.

Rohit Kumar, founding partner of The Quantum Hub, a New Delhi-based public policy and technology consulting firm, noted: "The announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure." However, he emphasized that execution challenges around power availability, land acquisition, and state-level regulatory clearances remain substantial obstacles.

Data Center Capacity Projections

According to Sagar Vishnoi, co-founder and director of Future Shift Labs, India's data center power capacity is projected to exceed 2 gigawatts by 2026, up from just over 1 gigawatt currently. Capacity could expand more than fivefold to surpass 8 gigawatts by 2030, driven by capital investments exceeding $30 billion.

Vishnoi characterized the tax exemption policy as a "strategic bet on global Big Tech," while noting potential concerns that routing services through reseller entities could leave smaller domestic players competing for minimal margins without receiving comparable upstream incentives.

Semiconductor and Electronics Manufacturing Initiatives

The budget also introduced enhanced incentives to deepen India's participation in electronics and semiconductor manufacturing. Key measures include:

1. Launch of a second phase of the India Semiconductor Mission, focusing on equipment and materials production, full-stack domestic chip intellectual property development, and supply chain strengthening
2. Increased allocation for the Electronics Components Manufacturing Scheme to ₹400 billion (approximately $4.36 billion) from ₹229.19 billion, following investment commitments exceeding double the original target
3. Five-year tax exemption beginning in April for foreign companies supplying equipment and tooling to electronics toll manufacturers in bonded zones

The Electronics Components Manufacturing Scheme provides incentives tied to incremental production and investment, reimbursing costs for manufacturers producing printed circuit boards, camera modules, connectors, and other components for smartphones, servers, and data center hardware. This output-linked approach aims to attract global suppliers and reduce import dependencies.

Critical Minerals and Rare Earth Strategy

Addressing vulnerabilities in critical mineral supply chains, the government announced support for mineral-rich states including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to establish dedicated rare-earth corridors promoting mining, processing, research, and manufacturing. This initiative builds upon a seven-year incentive program approved in late 2025 to boost domestic rare-earth magnet production amid tightening global supplies, particularly from China.

Cross-Border E-Commerce Enhancements

The budget removed the existing ₹1 million (approximately $11,000) value cap per consignment on courier exports, expected to benefit small manufacturers, artisans, and startups selling through international online platforms. Technology-enabled streamlining of rejected and returned shipment handling addresses a persistent bottleneck for exporters.

Strategic Outlook

The comprehensive measures underscore India's ambition to establish itself as a long-term hub for global technology infrastructure spanning cloud computing, electronics manufacturing, and critical minerals. Success will depend on execution capabilities—from ensuring reliable power and water resources for data centers to sustained support for domestic innovation—as global enterprises evaluate whether India can translate policy incentives into sustainable leadership in the AI era.

Sources:
India Budget Speech 2025 (PDF)
Bloomberg: Reliance Venture AI Data Center
Reuters: Adani-Google Data Center Investment
Reuters: India Data Centre Resource Constraints
Reuters: Apple Tax Clarity in India
Forbes India: Rare Earth Magnet Shortage
BBC: Global Rare Earth Materials Supply
Bloomberg: India Rare Earth Incentive Program