India has announced a 20-year tax exemption for hyperscale companies that use the country’s data centers to serve global customers, a move that could shift artificial intelligence-driven business to the South Asian country.

Experts say the already low cost of Indian data center infrastructure, coupled with tax holidays, makes using Indian data centers for global delivery more attractive to hyperscalers than competing hubs such as Singapore, the United Arab Emirates and Ireland.

Hyperscale enterprises refer to cloud computing giants such as Amazon Web Services, Microsoft Azure and Google Cloud, which have invested heavily in data center infrastructure to support artificial intelligence models.

Riaz Thinna, tax, regulatory and financial advisory partner at Grant Thornton Bharat, told CNBC: “This proposal will significantly increase the demand for hyperscale data centers and large foreign companies will now find India a base for significantly lower costs for global workloads.”

Thinna said the move would not only make India a “consumer market” for data center needs but also a “global computing hub for cloud computing and artificial intelligence”. He added that currently very large companies face “corporate income tax risk” if they have a “significant economic presence” in India.

Kumarmanglam Vijay, partner and head of direct tax practice at law firm JSA Advocates and Solicitors, explained that currently, data center operations in India by foreign hyperscalers are treated as permanent establishments and profits generated from these operations are subject to 35% tax, plus surcharges and surcharges.

Cloud services provided by global hyperscalers using data centers owned and operated by local developers will now be tax-free until 2047, Finance Minister Nirmala Sitharaman said in her budget speech on Sunday, adding that this would “boost investment in data centres”.

Compared with the United States and China, India’s role in the global artificial intelligence race is limited because it lacks strong indigenous basic models, chip manufacturing capabilities and large data center capabilities.

The proposed tax holiday and the investments it could bring could highlight India’s role in the global race for artificial intelligence at a time when the country is facing serious challenges. Increase Tech giants have announced billions of dollars in AI-related infrastructure investments.

India’s Minister of Electronics and Information Technology Ashwini Vaishnaw said at the recently concluded World Economic Forum that India has “made very good progress” in all five levels of artificial intelligence architecture (applications, models, chips, infrastructure and energy).

In addition to attracting hyperscalers, India is doubling down on its AI ambitions: motivating Establish a semiconductor design and production company in the country.

Tax exemption may benefit Indian IT and cloud services companies, e.g. Infosys, Wipro, TCS, HCL Technology They include Jio and Jio, experts and local data center developers said.

Raju Vegesna, chairman of Indian data center developer Sify Technologies, said the tax holiday is a “positive sign for continued, cost-effective capacity building”.

Google has partnered with AdaniConneX to build a new data center worth $15 billion AI The southern hub of India could be one of the biggest beneficiaries of the proposed tax holiday.

final Decemberwithin 24 hours, Microsoft and Amazon promised More than $50 billion is earmarked for cloud and AI infrastructure in India – they are yet to reveal details of local partners.

Google and Microsoft did not immediately respond to CNBC’s requests for comment, while Amazon Web Services declined to comment.

Global data center demand has soar In recent years, this has been driven largely by the explosion of artificial intelligence workloads, which require massive amounts of computing power, power, cooling and network infrastructure. So far in 2025, more than $61 billion has flowed into the data center market.

India’s current data center capacity is about 1.2 GW, but the market size will more than double over the next five years to exceed 3 GW. According to a January report from real estate consultancy JLL, global data center capacity was 103 GW, with projected double Due to the booming development of artificial intelligence, it will reach 200GW by 2030.

Ans Human Magazine, chief executive of India, Southeast Asia, Middle East and Africa at real estate consultancy CBRE, said the tax holiday for foreign cloud companies will remove “the biggest barrier for global hyperscalers to enter India”.

He said global capital inflows in India’s data center sector will “increase significantly” as tax incentives provide a 20-year window for return on investment.

Experts say that as markets such as Japan, Australia, China and Singapore mature in the Asia-Pacific region, India is expected to benefit as Singapore, one of the oldest data center hubs in the region, has limited space to deploy large data centers due to land supply issues.

There is broad space for the development of large-scale data centers in my country. The cost of electricity in India is relatively low compared to data center hubs in Europe. Coupled with India’s growing renewable energy capacity (critical for power-hungry data centers), the economics start to look compelling.

Deloitte India partner S. Anjani Kumar said tax holidays for foreign cloud services companies could have a similar effect to the IT services incentives of the early 2000s for India’s cloud and data center ecosystem, adding that it would “catalyze large-scale global investment, expand export earnings, and lead to long-term employment and capability creation”.