India offers tax-free cloud revenues till 2047 to attract AI infrastructure investment

India has unveiled a sweeping set of incentives aimed at drawing global cloud providers and AI infrastructure investors, offering one of the world’s longest tax holidays on overseas cloud revenues in an effort to anchor large-scale computing capacity within the country.

Under proposals announced in the Union Budget, foreign cloud service providers would be allowed to earn revenue from services sold outside India without paying taxes until 2047, as long as those workloads are operated from data centers located in the country. Services sold to Indian customers would continue to be taxed domestically and routed through locally incorporated reseller entities. The budget also introduces a 15% cost-plus safe harbour for Indian data center operators providing services to related foreign companies, offering greater certainty around transfer pricing.

The policy arrives as global technology companies race to expand data center capacity to meet surging demand from artificial intelligence workloads. With rising constraints in the US and parts of Europe, India is positioning itself as a viable alternative for large-scale compute expansion, backed by a sizable engineering workforce, expanding cloud adoption, and increasingly targeted policy support.

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Major US cloud providers have already committed significant capital to India. Google has announced plans to invest $15 billion to expand data center infrastructure and develop an AI hub, building on its earlier $10 billion commitment. Microsoft has outlined investments of $17.5 billion through 2029 to strengthen its AI and cloud presence, while Amazon has said its total planned investment in India could reach about $75 billion by 2030 across cloud and retail operations.

Domestic data center operators are also scaling up. Digital Connexion, backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, has announced plans to develop a large AI-focused data center campus in Andhra Pradesh, with investment commitments running into billions of dollars. The Adani Group has also disclosed plans to invest alongside Google in AI data center projects in the country.

Despite growing investor interest, the expansion of AI infrastructure in India faces structural constraints. Power availability remains uneven across regions, electricity costs are relatively high, and water scarcity poses challenges for cooling large-scale data centers. These factors could affect project timelines and operating economics, particularly as AI workloads significantly increase energy intensity.

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Concerns remain that the reseller-based model for domestic cloud consumption could compress margins for smaller Indian players, limiting their ability to compete with global firms that benefit from upstream tax incentives.

Beyond cloud computing, the budget reinforces India’s broader ambitions across electronics and semiconductor manufacturing. A second phase of the India Semiconductor Mission will focus on equipment and materials manufacturing, domestic chip intellectual property, and full-stack capability development, moving beyond assembly-led growth.

The government has also raised the allocation for the Electronics Components Manufacturing Scheme to ₹400 billion, after attracting investment commitments far exceeding initial targets. The scheme ties incentives to actual production and investment, encouraging global suppliers of components such as printed circuit boards, camera modules, and server hardware to deepen their footprint in India.

Additional measures include a five-year tax exemption for foreign companies supplying equipment and tooling to electronics manufacturers operating in bonded zones, a move expected to benefit multinational firms with large contract manufacturing operations in the country.

The budget also addresses vulnerabilities in critical mineral supply chains, with plans to support mineral-rich states in developing rare-earth corridors covering mining, processing, and downstream manufacturing. The initiative reflects growing concern over global supply constraints and concentration risks.