The Indian government is considering offering a tax exemption of up to 20 years to data center developers as part of the draft National Data Center Policy. The policy aims to position India as a global hub for cloud infrastructure, AI modeling, and digital services amid rising demand for storage and computing power.

Incentive Structure and Requirements

The draft policy proposes a generous incentive structure, including a tax holiday of up to 20 years. However, this tax exemption is contingent on data center developers meeting specific targets related to capacity addition, energy efficiency, and job creation. The policy also proposes extending GST input tax credit to capital assets such as construction material, cooling systems, HVAC, and electrical equipment.

Foreign Investment Provisions

The draft policy includes specific provisions for foreign players entering the Indian market. Companies leasing or operating a minimum of 100 MW capacity could get permanent establishment status in India. The policy also encourages eligible firms to set up AI development centers or global capability hubs in the same city as their data facilities. An official told Business Standard that this would create new jobs and strengthen domestic capacity in advanced technologies, not just in metro cities, but also in Tier-II and Tier-III towns.

Infrastructure and Operational Support

The draft policy addresses two major challenges facing the data center sector: land and power availability. It proposes that states should reserve land near industrial corridors, IT hubs, or manufacturing clusters specifically for data center parks. The IT ministry will work with other ministries to ensure reliable access to power for these facilities. Developers will be encouraged to use renewable sources of energy as much as possible under the proposed policy framework.

Industry Growth Trajectory

India's data center industry has been growing at an impressive 24% compound annual growth rate (CAGR) since 2019. JLL estimates that by 2027, an additional 795 MW of capacity will come online, taking the total capacity to 1,825 MW. Current occupancy rates are already at a high of 75-80%, indicating that demand is far outstripping supply in the sector.

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