India is offering foreign cloud providers zero taxes through 2047 on international AI workloads run from local data centers - the latest salvo in the global race for AI infrastructure investment.
Finance Minister Nirmala Sitharaman announced the policy Sunday in the annual budget. The mechanics: cloud services sold outside India pay no tax if workloads run from Indian data centers. Sales to Indian customers require routing through locally incorporated resellers, subject to domestic taxes. A 15% cost-plus safe harbor applies for Indian operators serving foreign entities.
The timing aligns with massive hyperscaler commitments. Google pledged $15 billion for an AI hub in October 2025. Microsoft committed $17.5 billion through 2029 in December. Amazon's total India investment now approaches $75 billion, with an additional $35 billion by 2030. The policy aims to capture more of this capital ahead of competitors.
The fine print matters here. This ties to India's 2047 developed-nation goal, positioning data centers as strategic infrastructure for jobs and AI capability. The budget also increased the Electronics Components Manufacturing Scheme to ₹400 billion (~$4.36 billion) from ₹229 billion, and added a five-year tax exemption for foreign equipment suppliers to electronics zones - benefits extending to Apple and other hardware manufacturers.
The real question is implementation. Power shortages, high electricity costs, water scarcity, and community pushback already constrain data center growth across India. A 22-year tax holiday only works if the infrastructure can actually support the workloads.
Analyst Sagar Vishnoi calls it a "strategic bet on Big Tech" for infrastructure development, but questions whether it builds meaningful domestic tech capability over two decades. The policy attracts foreign capital and creates construction jobs. What it doesn't necessarily create is an Indian cloud industry.
Three things to watch: power grid expansion timelines, water allocation in drought-prone regions, and whether hyperscalers actually redirect international workloads to India or simply use it for regional traffic. History suggests tax incentives matter less than operational fundamentals. We'll see if India's bet pays off.