Budget 2026: 20-year tax holiday to draw data center investments
What's the story
In a major move to make India a global digital hub, Finance Minister Nirmala Sitharaman has announced a proposed 20-year tax holiday for foreign companies setting up data centers and cloud computing infrastructure in the country. The proposal was unveiled in the Union Budget 2026-27 and is part of the draft National Data Centre Policy 2025. The initiative is aimed at attracting foreign direct investment (FDI) and boosting India's IT infrastructure growth.
Incentives
Long-term tax holiday for eligible companies
The proposed policy comes with a host of incentives to make India a preferred destination for global tech investment. These include a long-term tax holiday for eligible companies that meet prescribed capacity, energy efficiency (PUE), and employment targets. Such companies could enjoy up to 20 years of tax exemptions under this initiative.
Tax relief
GST and input tax relief
The proposed policy also offers GST and input tax relief on construction materials, HVAC systems, electrical equipment, and other capital assets essential for data center operations. This is aimed at reducing the financial burden on companies setting up data centers in India. The government hopes these measures will encourage more foreign firms to invest in India's digital infrastructure.
Tech support
Focus on AI, fintech, and 5G sectors
The proposed policy also seeks to support sectors such as AI, fintech, and 5G. It particularly focuses on developing Tier-II and Tier-III towns as emerging digital hubs. This is part of a broader strategy to ensure that India's digital infrastructure is not just concentrated in major cities but also extends to smaller towns.
Capacity boost
Initiative to increase data center capacity fivefold by 2030
The initiative also aims to increase India's data center capacity fivefold to 8GW by 2030, backed by an estimated $30 billion in capital expenditure. Leading global and Indian firms such as ST Telemedia (STT GDC India), CtrlS, NTT India, Tata Communications, Bharti Airtel (Nxtra Data), Sify Technologies, Reliance Jio, and AdaniConneX are likely to benefit from this policy.
Sector growth
Data center sector growth and future prospects
India's data center sector has grown at a 24% CAGR since 2019, driven by strong demand and high occupancy rates. Experts believe that the tax incentives and regulatory clarity offered by this new policy are likely to spur investment, boost technology adoption, and create job opportunities. This will further strengthen India's position in the global digital economy.