India Unveils 21-Year Tax Holiday to Lure Global AI Cloud Investment
February 2, 2026
In a bold move to position itself as a global hub for artificial intelligence and cloud computing, the Indian government has announced a sweeping tax incentive for foreign technology firms. The policy, which exempts revenues from cloud services sold outside India from taxation until 2047, is strategically designed to attract massive infrastructure investments and accelerate the nation's economic ambitions.
Finance Minister Nirmala Sitharaman confirmed the policy, framing data centers not merely as back-end infrastructure but as a strategic industry vital for national growth. The core condition for the tax benefit is that the cloud workloads must be processed and run from data centers physically located within India. This requirement aims to ensure that the economic benefits, including job creation and technology spillovers, are retained domestically.
The announcement builds upon an existing trend of significant commitments from major US cloud providers. Google has pledged an investment of $15 billion by 2030, Microsoft has committed $17.5 billion by 2029, and Amazon plans to spend $35 billion by 2030, all aimed at bolstering AI and data center infrastructure in the country. The new tax regime is expected to further incentivize such capital expenditure.
However, the incentive applies specifically to overseas sales. For cloud services sold within the Indian domestic market, transactions must be routed through locally incorporated resellers who will be subject to standard Indian taxation. This structure aims to nurture a local ecosystem while drawing in global giants.
Industry analysts note that the 21-year timeline of the tax holiday is aligned with Prime Minister Narendra Modi's "Viksit Bharat" (Developed India) vision, which targets achieving developed nation status by 2047. The long-term certainty is intended to give multinational corporations the confidence needed for large-scale, multi-decade investments.
Despite the attractive fiscal policy, significant challenges remain for operators. Critics point to India's sometimes unreliable power grid, high electricity costs, and regional water scarcity as potential hurdles for building and running energy-intensive data centers sustainably. The industry's high resource usage and its impact on local communities will also require careful management alongside the infrastructure boom.
The policy marks a decisive step in India's quest to become a pivotal node in the global digital economy, leveraging tax policy to compete for a share of the next generation of AI-driven cloud infrastructure.
Source: techradar
