India offers zero taxes through 2047 to lure global AI workloads

As the global race to build AI infrastructure accelerates, India has offered foreign cloud providers zero taxes on services sold outside the country until 2047 if they run those workloads from Indian data centers — an effort to attract the next wave of investment in AI computing even as power shortages and water stress threaten expansion in the South Asian country.

Indian Finance Minister Nirmala Sitharaman said this on Sunday announced (PDF) the proposal in the country’s annual budget, which provides a tax exemption (effectively zero taxes) on revenues from cloud services sold outside India if those services are managed from data centers in the country. Sales to Indian customers should be made through locally based resellers and taxed domestically, she told parliament. The Budget also proposes a safe harbor of 15% cost-plus for Indian data center operators providing services to related foreign entities.

The announcement comes as US cloud giants including Amazon, Google and Microsoft race to expand data center capacity globally to support growing artificial intelligence workloads, with India emerging as an increasingly attractive location for new investments. The country offers a large pool of tech talent and a growing demand for cloud services, and has positioned itself as a major alternative to the US, Europe and parts of Asia for expanding computing infrastructure.

In October, Google said 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 commitment in 2020. Microsoft followed in December with plans to invest $17.5 billion by 2029 to grow its AI and cloud footprint, and fund new data centers, infrastructure and training programs. Amazon also ramped up spending in December and said it would invest an additional $35 billion in India by 2030, bringing its total planned commitment to about $75 billion as it expands its retail and cloud businesses.

India’s domestic data center sector is also growing to meet global demand. In November, Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, said it invest $11 billion to develop a 1 gigawatt AI-focused data center campus in the southern state of Andhra Pradesh by 2030. The project, covering approximately 400 hectares in Visakhapatnam, is among the largest announced in India and underlines the growing interest from both domestic and global investors in building AI-ready infrastructure in the country. Separately, Adani Group said in December that it plans to do so invest up to $5 billion alongside Google in its AI data center project in the country.

However, scaling up data center capacity in India may prove difficult as limited energy availability, high electricity costs and water scarcity pose challenges. main limitations for energy-intensive AI workloads. These challenges can delay construction and increase operating costs for cloud providers.

“The announcements about data centers indicate that they are being treated as a strategic business sector and not just as back-end infrastructure,” said Rohit Kumar, founder of New Delhi-based The Quantum Hub, a public policy and technology consultancy. This push is likely to attract more private investment and strengthen India’s position as a regional data and computing hub, although implementation issues around energy availability, land access and state-level approvals remain, he added.

Sagar Vishnoi, co-founder and managing director of Noida-based think tank Future Shift Labs, said the energy capacity of Indian data centers is expected to exceed 2 gigawatts by 2026, up from just over 1 gigawatt currently, and could increase more than fivefold to over 8 gigawatts by 2030, driven by capital investments of more than $30 billion. While the Budget clearly signals the intention to accelerate digital infrastructure and cloud computing, Vishnoi says allowing foreign cloud companies to make tax-free profits until 2047 reflects a “strategic bet on global Big Tech”, even as India could produce its own technology champions in the next two decades.

He added that routing services to Indian users through resellers could allow smaller domestic players to compete for small margins, rather than receiving similar upstream incentives.

The federal budget has also boosted incentives to deepen India’s role in electronics and semiconductor manufacturing as the country looks to move beyond assembly and capture more value in global supply chains. The federal government would launch a second phase of the India Semiconductor Mission, the finance minister said, aimed at manufacturing equipment and materials, developing full-stack domestic chip intellectual property and strengthening supply chains, while supporting industry-led research and training centers to build a skilled workforce.

In addition, the Indian government has increased spending on the Electronics Components Manufacturing Scheme from ₹229.19 billion (about $2.50 billion) to ₹400 billion (about $4.36 billion) after the program – launched in April 2025 – attracted investment commitments more than double its original target, Sitharaman said.

This scheme provides incentives related to incremental production and investments, reimbursing some of the costs for companies that produce key components such as printed circuit boards, camera modules, connectors and other parts used in smartphones, servers and data center hardware. By tying payouts to actual production rather than upfront subsidies, the program aims to draw global suppliers deeper into India’s electronics supply chain and reduce dependence on imported components – a long-standing criticism of the country’s industrial push.

Besides increasing spending on the electronic components scheme, the federal budget also proposed a five-year tax exemption, starting in April, for foreign companies supplying equipment and tools to electronic toll manufacturers operating in bonded zones. The change is likely to benefit companies including Apple, which relies heavily on contract manufacturing in India and has reportedly done so asked for clarity from New Delhi on the tax treatment of high-quality iPhone production equipment supplied to its partners.

The Budget was also aimed at addressing vulnerabilities in critical minerals such as India grabs of strengthening global reserves of rare earth elements used in electric vehicles, electronic devices and defense systems. The Finance Minister said the federal government would support mineral-rich states, including Odisha, Kerala, Andhra Pradesh and Tamil Nadu, in setting up dedicated rare earth corridors to promote mining, processing, research and production. The move builds on a a seven-year incentive program approved in late 2025 to boost domestic production of rare earth magnets as access to supplies from China – which dominates global production – has become more limited.

In addition to AI infrastructure and electronics manufacturing, the Indian government has also taken steps to boost cross-border e-commerce, with the aim of helping smaller businesses meet global demand. The Finance Minister said the existing value limit of ₹1 million (about $11,000) per consignment for courier exports would be abolished, a move expected to benefit small manufacturers, artisans and startups selling abroad through online platforms. The federal government would streamline the handling of rejected and returned shipments using technology, addressing a long-standing bottleneck for exporters, Sitharaman said.

Overall, the latest moves highlight India’s ambition to position itself as a long-term hub for global technology infrastructure, spanning cloud computing, electronics manufacturing and critical minerals. The strategy aims to capitalize on rising demand for AI and changing supply chains. Nevertheless, its success will depend on its implementation – from reliable power and water for data centers to continued support for domestic innovation – as global companies and investors weigh whether India can translate policy incentives into sustainable leadership in the AI ​​era.