Tax Incentives for Hyperscalers
On February 1, 2026, India’s Finance Minister Nirmala Sitharaman announced a 20-year tax holiday for foreign hyperscalers using local data centers to provide global services. This exemption from corporate income tax—previously around 35%—aims to position India as a viable alternative to established data center hubs like Singapore and the UAE. The move eliminates a significant barrier for hyperscalers, who previously faced high tax obligations when establishing a permanent presence in India.
Boosting Data Center Capacity
India’s current data center capacity is around 1.2 gigawatts (GW), with projections suggesting it could exceed 3 GW within five years, driven primarily by AI workloads. The government plans to attract significant investment, having already received commitments totaling USD 70 billion to USD 90 billion. The low infrastructure costs and competitive power prices make India an attractive option for AI-driven data centers, as highlighted by JLL’s report.
Major Investments from Tech Giants
Following the budget announcement, major players like Microsoft and Amazon committed over USD 50 billion to bolster India’s AI infrastructure. Google has also partnered with AdaniConneX to develop a USD 15 billion data center in southern India. These investments signal a growing confidence in India’s ability to support large-scale AI operations, as noted in reports from CNBC.
Strategic AI and Semiconductor Initiatives
India is not only focusing on tax incentives but also on enhancing its semiconductor manufacturing capabilities, with a commitment of Rs 40,000 crore for electronics manufacturing. This holistic strategy, according to Minister Ashwini Vaishnaw, aims to position India as a leader in all five layers of AI, from applications to infrastructure. As India’s Electronics Ministry outlines, the groundwork is being laid for a comprehensive AI strategy that could rival even the U.S. and China.
Competitive Edge Against Global Hubs
India’s tax break strategy potentially gives it a competitive edge over established hubs like the UAE and Ireland. The country’s abundance of land and renewable energy sources, coupled with lower power costs compared to Europe, creates a compelling case for hyperscalers. Experts believe this could catalyze large-scale investments, positioning India not just as a consumer market but as a global player in cloud computing and AI.
Looking Ahead
In the next 6 to 12 months, expect to see a surge in foreign investment in India’s data center infrastructure, as hyperscalers leverage these tax incentives to establish operations. The removal of tax friction points will likely accelerate the transition of AI workloads to India, potentially transforming the country into a low-cost exporter of AI services. This strategic pivot could mirror the IT incentives of the early 2000s, leading to long-term growth in capabilities and export revenues.
