India Pushes AI Investment With Tax Breaks: Implications, Readiness, and Global competition India recently introduced a 20-year tax exemption for global companies that use data centres to service global clients.
By Kul Bhushan
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India is making efforts to position itself as the next global hub for Artificial Intelligence. This is evident from the recent Fiscal Budget 2026, wherein the government introduced a landmark 20-year tax holiday for global cloud companies. The zero-tax regime until 2047 is clearly a lucrative offer for hyperscalers, including Big Tech, looking to anchor their resources in India. Already, the likes of Google, Amazon, and Microsoft have made big commitments in the AI sector in India.
"Any foreign company that provides cloud services to customers globally by using data centre services from India to be provided Tax holiday till 2047. A safe harbour of 15 percent on cost to be provided if the company providing data centre services from India is a related entity," according to the Finance Ministry.
If successful, the move could lead to large investments in India in the coming years, as AI is likely to scale even more in the near future. Moreover, it prepares India for the next generation of technology innovations. Just for context, India has already made giant strides in the IT sector, making it a software giant and placing itself as a global GCC (Global Capability Center).
With AI on the horizon, Indian IT companies are also making the pivot, and for that, they need huge computing power. This is where the real challenge lies: Infrastructure development, energy requisites, and sovereignty complexities. These must be addressed as India takes the plunge into the AI space.
Experts believe the tax break is a push to make India a major global cloud and AI service delivery hub. This is mainly aimed at foreign cloud and AI service providers, who can enjoy tax-free revenues until 2047 by using Indian data centers to provide services intended for global users located outside India. This will be viewed positively by global hyperscale cloud and AI providers like AWS, Microsoft, Google, OpenAI, and Meta. It can also draw the attention of global neocloud operators such as CoreWeave, NScale, and Nebius.
As far as energy challenges go, the Indian government seems pretty confident. Recently, Union Minister Piyush Goyal said that India is a preferred destination for data centres as the country now possesses the requisite infrastructure, specifically power. He was referring to India's national grid, which is essentially an interconnected electricity network that recently crossed 500 Gigawatts (GW) of total installed power capacity. Moreover, reports suggest that the government may make changes to the certification framework it has been working on for data centres so that it meets the requirements of the massive consumption demands of AI.
"These changes recognize that AI workloads place unique demands on infrastructure and security. Without specific standards, facilities could suffer from inefficiency, instability, or breaches. Aligning certification with AI‑centric needs ensures operational reliability and resilience," Biswajeet Mahapatra, Principal Analyst at Forrester had told Entrepreneur India.
The report added that the Ministry of Electronics and Information Technology (MeitY) is working on national standards for AI data centres, which will cover operations and maintenance, among others. The data centres in question are said to need five times higher power and 10 times more water than conventional centres. Likely there is going to be some sort of a hybrid situation where there's a right balance of usage of renewable and non-renewable energy.
"Perception of India as lacking energy readiness for high-intensity workloads like AI can deter investments and lead to the choice of other regions for their needs. Therefore, data center operators must do everything required to secure in advance the power that will be needed. This will require them to actively engage with existing utility as well as power sector players for an alternate source of energy, including liquid gas, nuclear, and hydrogen. Global users and operators planning to provide services under this new regime must get clarity on all relevant regulatory compliances, including data privacy and cybersecurity," Naresh Singh, Sr Director Analyst at Gartner told Entrepreneur India.
While the global players get long tax breaks, it may weaken the position for homegrown sovereign cloud providers. According to Singh, Indian cloud service providers must double down on the domestic market by offering a competitive set of cloud services with a meaningful bouquet of differentiated sovereign features.
"Indian players must also explore setting up global entities and subsidiaries incorporated in favourable international locations to operate as a global company to grab the tax break benefit to offer cloud and AI services to customers outside India," he added.
That said, India's AI push, specifically for the global players and longer tax break, aims at competing with other markets which too are striving to become global AI centres.
For instance, Singapore last year launched the Enterprise Compute Initiative (ECI), a SGD150 million government-backed program to help push AI and cloud adoption in businesses. This large funding includes cloud credits for heavy AI workloads, tailored AI software tools for different industries, and consultancy from experts. The global cloud service providers (CSPs) which are working with the ECI in Singapore are Google, Amazon, Oracle, and Microsoft.
