Data centre tax holiday ramps up global demand for Indian players, but gaps

SENSEX 74,484.73

+ 333.69

NIFTY 23,044.30

+ 107.55

CRUDEOIL 9,861.00

+ 152.00

GOLD 141,500.00

 -1,096.00

SILVER 184,873.00

 -4,580.00

SENSEX 74,484.73

+ 333.69

NIFTY 23,044.30

+ 107.55

NIFTY 23,044.30

+ 107.55

CRUDEOIL 9,861.00

+ 152.00

CRUDEOIL 9,861.00

+ 152.00

GOLD 141,500.00

 -1,096.00

'; } document.getElementById("lgdv").innerHTML = htmlElements; } function numberformat(i) { return Number(parseFloat(i).toFixed(2)).toLocaleString('en', { minimumFractionDigits: 2 }) } async function gatherResponse(response) { const { headers } = response; const contentType = headers.get('content-type') || ''; if (contentType.includes('application/json')) { return await response.json() } return response.text(); } function getWidth() { if (Math.max(document.body.scrollWidth,document.documentElement.scrollWidth,document.body.offsetWidth,document.documentElement.offsetWidth,document.documentElement.clientWidth) > 991) { document.getElementById("mob").style.display = "none"; document.getElementById("lgdv").style.display = "block"; } else { document.getElementById("mob").style.display = "block"; document.getElementById("lgdv").style.display = "none"; } } getWidth(); THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.

The lack of operating rules for the DC tax holiday and regulatory and cost hurdles could slow India’s ability to convert this interest into investments for global workloads, say industry experts

By Sindhu Hariharan

Updated - October 30, 2026 at 01:14 PM.

Tax holiday for data centres is improving investor confidence and attracting greater interest from foreign cloud and hyperscale players to come to India, boosted by the country’s favourable position in the global market and increasing AI workloads.

Industry executives point to a combination of tax certainty, rising AI demand, geopolitical shifts, and India’s readily available capacity, placing Indian DC sector in a favourable position.

However, the absence of operational rules for the DC tax holiday till date, and various regulatory and cost-related hurdles could limit how quickly India converts this interest into investments serving global workloads, industry players and experts said. 

Manoj Paul, Managing Director, India, Equinix says the tax certainty announced in the Budget, further strengthens India’s position as a destination for cloud and AI infrastructure. AI adoption, cloud modernisation, digital financial services and increasingly data-intensive workloads are other reasons aiding demand, he says.

“At Equinix, we are seeing growing demand from cloud service providers for data center capacity and interconnection in India, including for workloads that serve users beyond the country,” he said. 76 percent of Equinix customers operate across more than two regions. Regions here refers to America, Europe, Asia Pacific etc. 

Sharad Agarwal, CEO, Sify Infinit Spaces Limited, said that the tax clarity is an ease of doing business driver, especially for new foreign investment into DC sector. “In the last six months, we have seen the number of conversations with foreign players have increased to great extent,” he said.

But he is quick to add that, increased AI workloads, Middle East crisis diverting preference to India, and the faster deployment in India DC market also helped. “Indian data center industry built speculatively and has excess capacity, which is now actually reducing,” he adds.

Further, others note that the tax holiday alone is not sufficient to bring in global players.

Referring to multiple letters sent to Union Minister Piyush Goyal, Piyush Somani, President of the Bharat Digital Infrastructure Association and Founder of ESDS, says that provisions in customs, FEMA, RBI’s ECB and lending norms, SARFAESI and the 18 per cent IGST upfront on GPU imports are some of the barriers to scaling up DC businesses and serving foreign clients.

The Association suggests a Lender Exit Framework for those lending to DCs, modelled on aircraft leasing. Further, a GST deferral through postponed import accounting and bonded status under Customs Act Section 65 can also help, he added.

Analysts at research firm JLL note that India’s data centre capacity is set to triple from 1.6 GW in mid-2026 to 6 GW by 2029, positioning it as Asia’s fastest-growing digital infrastructure market.

“This explosive growth is fueled by tax holidays, state incentives, and over $50 billion in commitments from global hyperscalers, who will self-build nearly 30 per cent of new capacity,” Rachit Mohan and Jitesh Karlekar of JLL note.

First-half 2026 absorption reached 101 MW, surpassing the three-year average by over 20 per cent, and pre-committed hyperscale capacity accounted for 82 per cent of total absorption, they add.

On technical feasibility of global giants serving international customers from India DCs, Equinix’s Paul says that it is “highly feasible.”

“India is well positioned between Southeast Asia, the Middle East, Africa and Europe, and new subsea cables landing in Mumbai and Chennai are strengthening global connectivity,” he said. 

On February 1, 2026, Finance Minister Nirmala Sitharaman announced that if any foreign company provided cloud services to customers globally by using data centre services located in India, it will get a tax holiday until the financial year 2046-47. Essentially, if the company runs its your global cloud business through a data centre based in India, the income they earn from customers outside India will not be taxed by the Indian government till 2047.

This removes a long-standing worry that global could be taxed in India.

To be precise, the tax exemption is not automatic. The foreign company must meet certain essential conditions to qualify and both the global player and the Indian DC must get notified by MeitY, among other processes.

However, the government has not yet notified the rules to operationalise this.

“It is a policy matter defined and announced and maybe the operationalisation is work in progress but there is a good amount of confidence that there is no retraction to that,” a senior DC sector executive said.

(With inputs from Vallari Sanzgiri)

Published on October 30, 2026

THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.Sign into Unlock benefits!

• Access 10 free stories per month
• Get notified by email for early preview to new features, discounts & offers