India offers zero taxes through 2047 to lure global AI workloads

India's finance minister Nirmala Sitharaman announced a proposal in the country's annual budget offering foreign cloud providers zero taxes through 2047 on revenues from cloud services sold outside India if those services are run from data centers in the country. Sales to Indian customers would have to be routed through locally incorporated resellers and taxed domestically. The budget also proposes a 15 percent cost-plus safe harbor for Indian data center operators providing services to related foreign entities. The announcement comes as U.S. cloud giants including Amazon, Google and Microsoft race to add data center capacity worldwide to support the surge in artificial intelligence workloads. India offers a large pool of engineering talent and growing demand for cloud services and has positioned itself as a key alternative to the U.S., Europe and parts of Asia for expanding compute infrastructure. However, scaling up data center capacity in India may prove difficult as patchy power availability, high electricity costs and water scarcity pose key constraints for energy-intensive AI workloads. Those challenges could slow construction and raise operating costs for cloud providers. Rohit Kumar, founding partner of New Delhi-based the Quantum Hub, said the announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure. The push is likely to attract more private investment and strengthen India's position as a regional data and compute hub, though execution challenges around power availability, land access and state-level clearances remain, he added. Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs, said India's data center power capacity is projected to surpass 2 gigawatts by 2026, up from just over 1 gigawatt currently, and could expand more than fivefold to exceed 8 gigawatts by 2030. He added that allowing foreign cloud firms to earn profits tax-free until 2047 reflects a strategic bet on global Big Tech, even as India could produce its own technology champions over the next two decades.