India Offers Zero Tax Until 2047 for Global AI Investments

India's Tax Exemption Move for Artificial Intelligence

As the global race for artificial intelligence infrastructure accelerates, India has offered tax exemptions until 2047 to foreign cloud service providers. According to the proposal announced by the country's Finance Minister Nirmala Sitharaman in her annual budget statement, revenue from cloud services executed from data centers in India and sold abroad will be exempt from tax. Only sales made to Indian customers will be routed through locally established distributors and will be subject to local taxes.

Major Investments from Global Tech Giants

This move coincides with a period where US cloud giants like Amazon, Google, and Microsoft are racing to increase data center capacity worldwide to support AI workloads. India has become an increasingly attractive location for new investments due to its vast engineering pool and growing demand for cloud services.

Google announced in October that it would invest $15 billion to establish an AI hub in India and expand its data center infrastructure. Microsoft, in December, announced it would expand its AI and cloud presence with $17.5 billion in investments by 2029. Amazon also announced plans to increase its spending in India, planning an additional $35 billion investment by 2030.

Local Sector Also Takes Action

India's local data center sector is also continuing its preparations to meet global demand. Digital Connexion, a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, reported it will invest $11 billion by 2030 to develop a 1-gigawatt, AI-focused data center campus in the southern state of Andhra Pradesh. Additionally, the Adani Group announced in December that it plans to invest up to $5 billion with Google in an AI data center project in the country.

Infrastructure and Energy Challenges Persist

However, increasing data center capacity in India can be challenging due to fundamental constraints such as irregular energy supply, high electricity costs, and water scarcity. These challenges could slow construction and increase operating costs for energy-intensive AI workloads.

Rohit Kumar, co-founder of The Quantum Hub, a New Delhi-based public policy and technology consultancy firm, stated that the statements regarding data centers signal that they are now being addressed not just as background infrastructure but as a strategic business sector. Kumar added that while this move is expected to attract more private investment and strengthen India's position as a regional data and processing hub, implementation challenges regarding energy supply, land access, and state-level permits persist.

Support for Semiconductor and Electronics Manufacturing Increases

The federal budget also increased incentives to deepen India's role in electronics and semiconductor manufacturing. The Finance Minister announced they will launch the second phase of the India Semiconductor Mission, focusing on equipment and material manufacturing, developing full-stack indigenous chip intellectual property, and strengthening supply chains.

Furthermore, the allocation for the Electronic Components Manufacturing Scheme was increased from 229.19 billion Rupees (approximately $2.50 billion) to 400 billion Rupees (approximately $4.36 billion) after the program attracted investment commitments more than double its original target. This scheme offers incentives linked to increased production and investment by reimbursing a portion of costs for companies producing key components like printed circuit boards, camera modules, and connectors used in smartphones, servers, and data center hardware.

Focus on Critical Minerals

The budget also addressed vulnerabilities in critical minerals due to India's struggle with global supply shortages of rare earth materials used in electric vehicles, electronic devices, and defense systems. The Finance Minister said the federal government will support the creation of dedicated rare earth corridors in mineral-rich states like Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to promote mining, processing, research, and manufacturing.

Conclusion and Expectations

Overall, these latest measures highlight India's goal of positioning itself as a long-term hub for global technology infrastructure in areas like cloud computing, electronics manufacturing, and critical minerals. The strategy aims to leverage growing AI demand and shifting supply chains. However, its success will depend on implementation, ranging from reliable energy and water supply to sustained support for local innovation. Global companies and investors will assess whether India can translate its policy incentives into lasting leadership in the AI era.