Big US tech companies like Google, Microsoft, and Amazon have asked the Indian government for direct tax benefits. They want to expand their data centers across India. The government is currently discussing this request.
Government’s View on Tax Incentives
Officials say the Central Government is hesitant to offer direct tax breaks because many states already provide incentives. Instead, they are thinking about giving other benefits, excluding direct tax cuts. These aims to encourage tech firms to build data centers in smaller cities like Tier II and Tier III towns.
One official said, “We do not support tax holidays or lower corporate tax rates for data center growth. The 15% concessional tax scheme ended in FY25, and we won’t bring it back.” Still, talks are ongoing as the government wants to promote data localization and support the tech industry through good policies.
Regional Concerns and Suggestions
Andhra Pradesh Chief Minister Chandrababu Naidu pointed out that current tax laws discourage foreign cloud service providers (CSPs) from investing in India. He suggested changing Section 9(1) of the Income Tax Act. This would clarify that Indian data center affiliates are not a permanent establishment (PE) for foreign CSPs. This change would lower tax burdens and attract more foreign investment.
India’s Data Localization Rules
India requires some sensitive and important data to be stored and processed inside the country. The Digital Personal Data Protection Act (2023) allows cross-border data transfers, except to blacklisted countries. Regulators like the Reserve Bank of India (RBI) can demand local storage for sensitive data.
For example, RBI rules require payment operators to keep full datasets, including logs, inside India, even if processing happens abroad.
Tech Giants’ Data Center Investments in India
To follow these rules, companies like Google and Microsoft have set up multiple data centers in India. Google is building a large campus near Mumbai with advanced storage, encryption, and data controls.
Microsoft runs data centers in Pune, Chennai, and Mumbai and is building a new one in Hyderabad. Microsoft CEO Satya Nadella announced a $3 billion investment in cloud and AI infrastructure over the next two years.
State-Level Incentives for Data Centers
States in India offer strong incentives to attract data centers:
- Maharashtra gives up to 10 years of GST exemptions, stamp duty waivers, subsidized power, and fast clearances.
- Karnataka and Tamil Nadu offer capital subsidies of 20-25%, guaranteed power, and easier building rules.
- Odisha and Punjab provide employment incentives and tax refunds.
Officials are also thinking about more non-tax benefits to encourage companies to invest in smaller cities.
Global Outlook and Future Plans
Experts say the high costs and long setup times make targeted fiscal support very important. Incentives like tax holidays, faster depreciation, and infrastructure help attract investment and make India a global data center hub.
Ritika Loganey Gupta, Tax Partner at EY India, said, “India’s data center market will reach $10.7 billion by 2030. Smart incentives will reduce costs, attract investors, and strengthen India’s role in the global digital economy.”
Sivakumar Ramjee, Executive Director at Nangia Andersen, added, “States offering infrastructure support and cheap land are becoming key global data hubs. Combined with central policies, this can make India a top choice for hyperscale and AI data centers in Asia.”
Tax Incentives Worldwide
Many countries offer tax breaks to attract data center investments:
- Brazil offers tax breaks on IT equipment.
- In the US, states like Georgia and Michigan give sales tax exemptions, property tax cuts, and income tax credits.
- Countries like Romania, Saudi Arabia, and Singapore also provide tax benefits to support their IT sectors.
Conclusion
India’s government wants to encourage data center growth without giving direct tax breaks. Instead, it prefers policy incentives. With rising cloud demand, supporting data centers in smaller cities is key to India’s digital economy and global tech position.
