Centre Proposes 20-Year Tax Exemption for Data Centres to Boost Digital Infrastructure

The Centre has suggested that data centre developers receive a 20-year tax exemption in an effort to boost the data centre sector. Developers that satisfy the goals for capacity expansion, power usage efficiency, and job creation would be exempt from taxes, as per the draft National Data Centre Policy 2025, which Business Standard analysed.

According to the report, the Ministry of Electronics and Information Technology (MeitY) is likely to ask the Finance Ministry to permit input tax credit on GST, which is imposed on capital assets like data centre construction, HVAC, air conditioning, and other electronic equipment used in data centres.

“The government’s proposal of a 20-year tax exemption for data centers is a visionary step that underscores India’s commitment to building a robust digital-first economy. Data centers form the backbone of our digital ecosystem, and this move will not only attract significant domestic and global investments but also accelerate the growth of allied industries such as cloud services, AI, IoT, and interconnection platforms. Such forward-looking incentives act as catalysts that empower enterprises, SMEs, and ISPs to accelerate innovation and growth with renewed confidence. A 20-year tax holiday offers long-term clarity for investors, paving the way for world-class infrastructure, regional data sovereignty, and advanced interconnection. This certainty strengthens India’s digital foundation while ensuring faster, safer, and more dependable services for businesses and citizens alike,” opined Sudhir Kunder, Chief Business Officer, DE-CIX India.

Draft Policy Currently Being Reviewed

Stakeholders are presently receiving the draft policy for review and comment. To make power accessible to data centres, the draft policy suggests that the IT ministry work with the Central Electricity Authority, the power ministry, and other important government-led organisations.

The goal of the policy is to stimulate the sector in light of the growing need for data centres. By 2030, India’s internet user base is predicted to reach 1.2 billion, necessitating the construction of data centre-powered cloud infrastructure. In addition, the need for data centres—which are essential to AI—has increased dramatically as a result of the technology’s quick adoption. To train and implement complicated AI models, data centres offer the processing power, fast networking, and massive storage required.

With an investment of more than INR 10,000 Cr, the Centre notably announced the IndiaAI Mission, which aims to build AI compute infrastructure through a public-private partnership and create AI foundational models encompassing key Indian languages for important areas including governance, healthcare, and agriculture.

Data Centres Alluring Foreign Investments

Many international AI and large tech businesses are investing in the nation’s data centre market, encouraged by the increase in the use of AI. For example, OpenAI intends to establish a data centre in India and is seeking to collaborate with regional companies to build a facility with a minimum capacity of one gigawatt (GW).

In Andhra Pradesh, Google also intends to invest $6 billion to construct a 1 GW data centre and related power infrastructure. The IndiaAI Mission has chosen three AI startups to create domestic AI models in India: Soket AI Labs, Gnani.ai, and Gan.ai. According to the Economic Survey for 2024–2025, the data centre market in India is anticipated to grow to a value of $11.6 billion by 2032.