The Indian government has put forward a draft National Data Centre Policy that offers developers up to 20 years of tax exemption, provided they fulfil certain conditions.
These incentives are designed to accelerate investments in data centres — a sector increasingly important as cloud computing, AI workloads, data localisation, and digital services expand rapidly in India.
Key Features of the Proposal
- 20-Year Tax Holiday
Developers may receive tax exemptions for up to two decades. But this benefit is not unconditional — it’s linked to meeting targets related to capacity addition, power usage effectiveness (i.e. energy efficiency), and generating employment. - GST Input Tax Credit (ITC) on Capital Assets
The policy proposes extending GST input tax credit for capital assets like construction, heating-ventilation-air conditioning (HVAC), cooling systems, and other electrical infrastructure required in data centres. - Foreign Players & Permanent Establishment Status
Companies (including foreign ones) leasing or operating data centres with a capacity of at least 100 MW may get permanent establishment status in India. This could help in clarifying tax obligations and giving confidence to foreign investment. - Land, Power & Infrastructure Support
The draft suggests that states reserve land near industrial corridors, IT hubs or manufacturing clusters for data centre parks. Also, ensuring reliable power supply, encouraging renewable energy usage, and working across ministries (IT, Power, Central Transmission) are part of the plan. - Conditional Incentives
To be eligible, data centres must meet certain thresholds (capacity, energy efficiency, job creation). It ensures that incentives go to developers who contribute meaningfully to infrastructure, sustainability, and local employment.
Why This Matters
- Boost for investment: A 20-year tax holiday is a strong signal to both domestic and international players that India is serious about becoming a global hub for data infrastructure. This kind of policy helps reduce cost uncertainty, which is a big factor in capital-intensive sectors.
- Supports digital transformation: More data centres mean better capacity for cloud services, AI, data localisation, edge computing etc., which are becoming critical for businesses, government services, and consumers.
- Energy & sustainability push: The efficiency targets and emphasis on renewable energy signal that the government is mindful of the large power footprint of data centres.
- Regional development: By encouraging infrastructure in tier-II/III cities and reserving land in industrial or IT zones, this may help spread growth outside major metros.
Challenges & Things to Watch
- Clarity in how targets will be measured: What precise metrics will determine “power usage effectiveness”? How many jobs count? These need clear definitions to avoid ambiguity.
- Implementation across states: Land allotment, power connections, single-window approvals etc. will vary state by state. Getting coordination right is essential.
- Balancing revenue loss: A 20-year exemption is generous; the government will have to assess how much revenue it’s foregoing vs. the long-term economic gains.
- Competition & fairness: Ensuring both domestic and foreign players are treated fairly, and that smaller developers aren’t left out.
Current Status & Next Steps
- The draft policy is under stakeholder consultation. Business Standard
- Pending final approvals from key ministries (MeitY, Finance, etc.).
- If finalized, these provisions could substantially change the investment landscape in the data centre sector.
Conclusion
India’s proposal for a 20-year tax exemption for data centre developers could be transformative. It aligns with global trends in infrastructure investment, supports the country’s push into AI, cloud, and data services, and signals strong policy support for building out digital backbone. But success will depend heavily on how well the policy is crafted, measured, and implemented across states and stakeholders.
