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

India has announced a 20-year tax exemption for hyperscalers that use data centers in the country to service global clients, in a move that could shift artificial intelligence-driven businesses to the South Asian country.

According to experts, cost of data center infrastructure is already low in India and coupled with the tax holiday it will make using data centers in India for global delivery more attractive for hyperscalers, compared to competing hubs including Singapore, UAE and Ireland.

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

“This proposal will significantly increase the hyperscaler demand and major foreign firms will now find India a significantly cheaper base for global workloads,” Riaz Thingna, partner, tax, regulatory and finance consulting at Grant Thornton Bharat, told CNBC.

This move positions India not just as a “consumption market” for data center demand but as a “global cloud computing and AI computing hub,” Thingna said, adding that currently hyperscalers face “corporate income tax exposure” if they have “significant economic presence” in India.

Currently, data center operations of foreign hyperscalers in India are considered permanent establishment and the profits arising from these operations are taxed at 35% plus surcharge and cess, explained Kumarmanglam Vijay, partner and head of practice-direct tax at legal firm JSA Advocates and Solicitors.

Now, cloud services provided by global hyperscalers using data centers owned and operated by a local developer will be exempt from tax until 2047, India’s Finance Minister Nirmala Sitharaman said during her budget speech on Sunday, adding that it will “boost investment in data centers.”

India’s role in the global AI race has been limited so far as it lacks strong local foundational models, chip manufacturing abilities and large data center capacities as compared to the U.S. and China.

The proposed tax holiday and the investment it is likely to bring could accentuate India’s role in global AI race at a time when the country is seeing increasing interest from tech behemoths that have announced billions in AI-related infrastructure investments.

India’s Electronics and Information Technology Minister Ashwini Vaishnaw said at the recently concluded World Economic Forum that India was “making very good progress” in all the five layers of AI architecture — applications, models, chip, infra and energy.

Apart from attracting hyperscalers, India has been doubling down on its AI ambitions by incentivizing semiconductor design and production companies…