India offers 0% tax until 2047 for AI data centers

Let me break this down: imagine a country telling you "set up shop here and you won't pay taxes for 21 years." This isn't a startup in a tax haven. It's India, the world's fifth-largest economy, offering zero corporate tax until 2047 to any foreign company operating cloud services from Indian data centers.

On February 1, 2026, Finance Minister Nirmala Sitharaman unveiled the Union Budget 2026-27 with a measure that has shaken the global tech industry: complete elimination of corporate tax (which was 35% plus surcharges) on export revenue from cloud services operated from India. The exemption runs until March 31, 2047, coinciding with the country's centenary of independence.

Big Tech has already responded. AWS commits $35 billion, Microsoft $17.5 billion, and Google $15 billion. Between just these three, that's $67.5 billion bet on India. And this is only the beginning.

But here's what most guides won't tell you: India generates 20% of the world's data yet hosts only 3% of global data center capacity. That gap is exactly what this incentive aims to close. In this article, I walk you through how the exemption works, who benefits, what risks exist, and why this decision could redefine where the world's AI gets trained.

How the tax exemption works: the rules of the game

From 35% to 0%: what changes

Before this policy, a foreign company operating cloud services from India paid a 35% corporate tax plus surcharges. Under the new regime, that drops to zero for export revenue. Meaning, if Amazon runs a data center in India and sells cloud services to clients in Europe, Japan, or Latin America, it pays no tax in India on that revenue.

The budget speech puts it plainly:

"India will provide a tax holiday till 2047 to any foreign companies that provide cloud services to their customers globally, by using data centre services from India."

The conditions (the devil is in the details)

Think of it like renting a space in a mall with free rent. Sounds great, but there are conditions. Same here:

The trick is that India isn't giving away taxes for nothing. It requires physical infrastructure to be Indian-owned, domestic sales to be taxed normally, and each case to be government-approved. It's a smart play: attract foreign capital while maintaining control over physical assets.

Safe harbor: fewer tax disputes

Beyond the exemption, India introduced a 15% cost-plus safe harbor for Indian data center operators providing services to related foreign entities. This reduces transfer pricing disputes, which are the number one headache for multinationals operating in India.

The numbers that explain everything

The gap India wants to close

The data is striking:

India produces a disproportionate amount of data relative to its capacity to process it. That means data from hundreds of millions of Indians gets processed in Singapore, Japan, or the United States. For a country with digital sovereignty ambitions, that's unacceptable.

Who's betting (and how much)

80% of Big Tech investments were announced in December 2025 alone. Here's the breakdown:

To put these numbers in perspective: the combined AWS, Microsoft, and Google commitment to India ($67.5B) equals the entire GDP of countries like Croatia or Uruguay.

Why India is doing this now

Digital sovereignty: data is power

There's a lesson India learned the hard way. In a recent incident, Microsoft suspended cloud services to Nayara Energy (an Indian company with Russian investment) due to Western sanctions. Overnight, an Indian company lost access to its own digital infrastructure because it was hosted on servers controlled by an American company.

That kind of vulnerability is exactly what India wants to eliminate. If data centers are physically in India and owned by Indian entities, the government has jurisdiction over them. Dependence on foreign infrastructure becomes a national security issue.

The war for AI infrastructure

The trick is understanding the global context. Training a 70-billion-parameter AI model costs $45-48 million on AWS or Azure. Specialized Indian providers already offer it for $14-19 million. With the tax exemption, that gap could widen further.

The demand for AI compute is insatiable. Data centers are the new critical infrastructure, the 21st-century equivalent of highways and power grids. India wants to be where the world's AI gets trained.

Competing with the neighbors

India isn't alone in this race. Competition is fierce:

• Singapore has run out of physical space. It has imposed moratoriums on new data center construction.
• Malaysia is the most aggressive competitor: it attracted $51.4B in digital investment in 2023-2024. But its data centers could consume 70-90% of the country's electricity output growth.
• Japan is stable but expensive.
• UAE offers cheap energy but raises data sovereignty concerns.

India's edge: abundant land, cheap labor, a massive domestic market, and now 21 years of tax certainty. No other country offers a window that long.

India vs the world: the comparison that matters

On paper, India's offer is unbeatable in fiscal terms. But the numbers don't tell the whole story.

The problems India can't hide

The power grid: Achilles' heel

A data center needs what's called "five nines" availability: 99.999% uptime. That translates to less than 5.26 minutes of downtime per year. India's power grid doesn't meet that standard.

What most guides won't tell you is the "dirty secret" of Indian data centers: they rely on diesel generator farms for backup. A 100 MW campus needs its own backup power plant. That means enormous operating costs and a carbon footprint that contradicts any sustainability promises.

India's Economic Survey 2026 acknowledges it: power availability is the number one bottleneck for data center expansion.

Water: the invisible resource running out

Data centers consume massive amounts of water for cooling. And they're being built in water-stressed regions: Bengaluru, Navi Mumbai, Pune.

A striking figure: the Yotta Data Centre Park, with a 130 MW IT load, consumes 3.3 billion liters of water annually. That's equivalent to the consumption of a town of 70,000 people.

States compete to attract data centers with incentives, but few assess long-term water security. And companies disclose little about their actual water consumption.

Internet infrastructure: still light-years behind

India lacks the submarine cable density and traffic exchange points that Singapore has. Fiber optic infrastructure in Tier 2 cities is underdeveloped. And grid transmission expansion lags behind both renewables growth and data center demand.

The fundamental criticism: hosting ground or tech champion?

Sagar Vishnoi, co-founder of Future Shift Labs, raises the uncomfortable question:

"Allowing foreign firms to earn profits tax-free until 2047 reflects a strategic bet on global Big Tech. Routing through resellers could leave smaller domestic players competing for thin margins."

The question is legitimate: does India want to be the world's digital factory (like China was for manufacturing) or does it want to create its own tech champions? Offering 21 years of zero taxes to foreign companies suggests the former.

What this means for you (and cloud prices)

Cheaper cloud computing (eventually)

Indian cloud providers already offer GPU compute at 60-73% lower prices than AWS, Azure, or GCP. A monthly 8x H100 setup:

As hyperscalers build more capacity in India under the tax exemption, some of those savings could pass through to customers. Don't expect an immediate drop, but the medium-term trend is clear: more capacity = more competition = better prices.

Latency for Asian users

India's geographic position provides good latency to South Asia, the Middle East, and Southeast Asia. For companies serving those markets, processing data in India instead of Singapore or Virginia could significantly improve response times.

Where future AI gets trained

This is the bottom-line question. If India can solve its power and connectivity challenges, it could become one of the top three global hubs for AI infrastructure, alongside the United States and China. That would mean a significant portion of the AI models you use daily (ChatGPT, Claude, Gemini) could be trained on servers in Visakhapatnam or Bengaluru.

The geopolitics behind the servers

The third pole

In a world split between US (39% of global data center capacity) and Chinese (22%) tech infrastructure, India positions itself as a neutral third pole.

India maintains diplomatic relationships with the US (Quad alliance) and Russia (historical ties). Unlike Malaysia, where Chinese-owned data centers face US scrutiny over chip compliance, India offers a cleaner geopolitical profile for Western hyperscalers.

For companies needing geographic redundancy outside the Washington-Beijing axis, India is the most attractive option.

Asia-Pacific will dominate

According to Moody's, Asia-Pacific data center capacity will more than double by 2030, with the region accounting for 40% of the global total, driven by $800 billion in investments. India wants to capture a significant share of that growth.

FAQs: Frequently asked questions about India's tax exemption

Can any company benefit from the exemption?

No. Only foreign companies specifically notified by India's central government can access the exemption. Data centers must operate under schemes approved by the Ministry of Electronics and IT, and the physical infrastructure must be owned by Indian entities. It's not an automatic regime: it requires case-by-case approval.

How much does a company actually save with this exemption?

The savings are substantial. Corporate tax for foreign companies in India was 35% plus surcharges. With the exemption, it drops to 0% on export revenue. For a company generating $1 billion in cloud export revenue, the savings would be approximately $350 million per year in taxes.

Will this affect AWS, Azure, or Google Cloud pricing?

Not in the short term. Hyperscalers don't pass tax savings directly to prices. But in the medium term, greater capacity in India (which already has lower operating costs) will create more competition and push prices down, especially for Asian customers.

Is it safe to host data in India?

It depends on context. India has evolving data protection laws (Digital Personal Data Protection Act, 2023), but implementation is in early stages. For data subject to European GDPR, hosting in India requires adequacy assessments that don't yet exist. For Asian or US company data, India offers a viable alternative with local jurisdiction.

Can India really compete with Singapore?

In capacity and cost, yes. In reliability, connectivity, and regulatory maturity, not yet. Singapore has Asia's best interconnection infrastructure and a proven legal framework. India has land, cheap labor, and now an unprecedented tax incentive. They're complementary rather than substitutive plays: many companies will have a presence in both.

Conclusion: the most aggressive bet on the planet

India just launched the most aggressive fiscal offer any country has made to attract data center infrastructure. Zero taxes for 21 years is a proposition no competitor matches.

But a tax exemption doesn't build a reliable power grid, doesn't solve water scarcity, and doesn't lay submarine cables. India has ambition and numbers on its side (20% of global data, a domestic market of 1.4 billion people), but the technical obstacles are real and won't be solved by a budget decree.

What most guides won't tell you is that this play isn't just economic. It's geopolitical. India is positioning itself as the third pole in the US-China tech war. A place to train AI models without being subject to Washington's sanctions or Beijing's surveillance.

The $67.5 billion committed by AWS, Microsoft, and Google suggest the market is taking the bet seriously. If India can execute — which is the big "if" — we may be witnessing the birth of a new global epicenter for digital infrastructure.

2047 is far away. But the decisions being made today will determine where tomorrow's world gets processed.