New Delhi: India’s Union Budget 2026–27 sends a clear signal to global technology companies: the country wants to become a long-term hub for cloud computing and artificial intelligence (AI) infrastructure. At the heart of the strategy is an unprecedented tax incentive designed to draw massive, long-duration investments into India’s data center and semiconductor ecosystem.
A Long-Term Tax Bet on AI Infrastructure
Under the new proposal, eligible foreign cloud service providers that run their global operations through data centers located in India will receive a tax holiday until 2047. Income earned from global customers will not be taxed in India, provided specific conditions are met.
Domestic safeguards remain in place. Services offered to Indian customers must be routed through an Indian reseller, ensuring local revenues stay taxable. Indian data center companies will continue to be taxed under existing domestic rules. For related-party data centers, a 15% safe-harbor margin on costs has been proposed to minimize tax disputes.
The unusually long tax window—spanning more than two decades—offers the kind of policy certainty global firms seek before committing billions of dollars to AI-scale infrastructure.
Why It Matters in the Global AI Race
AI data centers are capital-intensive, power-hungry, and built to operate for decades. Without stable policy, companies hesitate to invest. That stability is exactly what India is offering at a time when global competition is heating up.
According to UNCTAD, data centers accounted for more than one-fifth of global greenfield investment projects in 2025, with announced investments exceeding $270 billion. The United States has moved to fast-track approvals for large AI facilities, while China continues to rapidly expand its cloud and AI footprint.
India’s tax certainty through 2047 is intended to put it squarely in this race—and keep it there.
Beyond Tax Breaks: Building the Full Stack
The Budget links cloud incentives to a broader technology push. India Semiconductor Mission 2.0 has been launched with an allocation of ₹1,000 crore for 2026–27, focusing on chip equipment, materials, design, and talent.
Funding for the Electronics Components Manufacturing Scheme has jumped from about ₹22,000 crore to ₹40,000 crore, with the government citing strong early interest from manufacturers. These steps matter because AI data centers depend on advanced chips and electronics—without them, cloud ambitions stall.
IT Services Reforms to Reduce Friction
India’s IT exports exceed $220 billion, and the Budget proposes to simplify tax treatment by grouping multiple IT services under a single category with a 15.5% safe-harbor margin. Eligibility thresholds have been raised, and approvals are expected to be faster and more automated, reducing uncertainty for firms that will support AI infrastructure and services.
Where India Stands Today
India’s data center capacity is estimated at about 1,280 megawatts, with industry forecasts suggesting it could grow four to five times by 2030. Nearly $70 billion in investments are already underway, with another $90 billion announced.
The government’s GI Cloud (MeghRaj) already underpins public-sector digital services. The new measures aim to build on that base and attract global AI workloads to Indian soil.
The Bigger Picture
This is not just about tax relief. By combining long-term tax certainty, a semiconductor push, and simpler IT rules, the government is trying to create a complete AI ecosystem—from chips to cloud to advanced services.
Execution will be key. Power availability, regulatory speed, and ease of doing business will determine how much global capacity actually moves. Still, with a horizon stretching to 2047, the message is unmistakable: India doesn’t just want to use AI—it wants to host the world’s AI infrastructure.