India courts Big Tech with long‑term tax breaks as it doubles down on AI ambitions

India announced a 20-year tax exemption for hyperscalers utilizing data centres within the country to serve global clients, a move intended to attract artificial intelligence-driven businesses. The announcement was made by Finance Minister Nirmala Sitharaman on February 1, 2026, during her budget speech.

Tax Holiday Details

Currently, data centre operations of foreign hyperscalers in India are taxed at 35% plus surcharge and cess. The new tax exemption, effective until 2047, applies to cloud services provided by global hyperscalers using data centres owned and operated by a local developer. This is expected to “boost investment in data centres,” according to Finance Minister Sitharaman.

Did You Know? In December 2025, Microsoft and Amazon pledged more than $50 billion toward India’s cloud and AI infrastructure in under 24 hours.

Experts believe the tax holiday, combined with already low data centre infrastructure costs in India, will make the country a more attractive location for hyperscalers compared to hubs like Singapore, the UAE, and Ireland. Riaz Thingna, partner at Grant Thornton Bharat, stated that the proposal will “significantly increase the hyperscaler demand” and make India a “cheaper base for global workloads.”

Implications for India and Global AI

This move aims to position India as a “global cloud computing and AI computing hub,” rather than simply a “consumption market” for data centre demand. India’s role in the global AI race has been limited due to a lack of strong local foundational models, chip manufacturing abilities, and large data centre capacities compared to the U.S. And China.

Expert Insight: The tax holiday represents a strategic effort to capitalize on the surging global demand for data centre capacity, driven by the rapid expansion of AI workloads. By reducing the tax burden for hyperscalers, India is attempting to attract significant foreign investment and establish itself as a key player in the AI ecosystem.

The tax exemption is anticipated to benefit Indian IT and cloud service firms including Infosys, Wipro, TCS, HCL Tech, and Jio, as well as local data centre developers like Sify Technologies. India’s current data centre capacity is around 1.2 gigawatts, and is projected to exceed 3 gigawatts within the next five years. Global data centre capacity was 103 GW in January 2026 and is expected to double to 200GW by 2030.

Future Outlook

If the tax holiday is successful, India could see a substantial increase in global capital inflows into its data centre space. As markets like Singapore mature and face land availability issues, India’s abundant space and relatively low power costs could make it a preferred destination for hyperscaler investments. Further investment in semiconductor design and production is also underway, with India incentivizing companies to establish operations within the country.

Frequently Asked Questions

What are hyperscalers?

Hyperscalers are cloud computing giants such as Amazon Web Services, Microsoft Azure and Google Cloud that are investing heavily in data centre infrastructure that power AI models.

What is the duration of the tax exemption?

The tax exemption for hyperscalers will be in effect until 2047.

Which companies are expected to benefit from this tax holiday?

Indian IT and cloud service firms such as Infosys, Wipro, TCS, HCL Tech, and Jio, as well as local data centre developers, are likely to benefit. Google, which has partnered with AdaniConneX, is also expected to be a major beneficiary.

Will this tax incentive be enough to overcome existing challenges in India’s AI infrastructure and propel the country to the forefront of the global AI race?