National Data Centre Policy: 20-Year Tax Exemption to Boost Data Centre Industry

India’s digital economy is at an inflection point. With over a billion people coming online in the next few years, the demand for cloud storage, computing power, and AI infrastructure is set to soar like never before. In a move that could redefine the backbone of India’s digital future, the Centre is considering sweeping incentives for data centre developers—including tax exemptions for up to 20 years.

According to the draft National Data Centre Policy 2025, reviewed by Business Standard, developers that meet specific benchmarks for capacity expansion, energy efficiency, and job creation may qualify for these long-term tax breaks.

What the Draft Policy Proposes

The draft policy—currently being circulated among stakeholders—aims to create a robust environment for the data centre industry. Some of its key proposals include:

• 20-year tax exemption for developers who achieve targets on capacity, power usage effectiveness, and employment.

• Input tax credit (ITC) on GST for capital-intensive assets like construction, HVAC systems, and electronic equipment, subject to approval from the finance ministry.

• Inter-ministerial coordination, with MeitY working closely with the power ministry, Central Electricity Authority, and other bodies to ensure seamless electricity access for data centres.

The idea is to lower the cost of building and operating large-scale facilities while ensuring that India can keep pace with the explosive demand for digital infrastructure.

Why India Needs a Strong Data Centre Push

India’s internet user base is projected to touch 1.2 billion by 2030, creating massive demand for cloud and storage facilities. Add to this the surging adoption of artificial intelligence (AI), which requires immense computing power and data storage, and the case for data centres becomes even stronger.

Data centres are no longer just storage hubs—they are the engine rooms of modern digital economies. They provide:

• Compute power to train large AI models.

• High-speed networking to process real-time data.

• Massive storage capacity to support cloud applications and enterprise needs.

AI as the Growth Catalyst

AI is emerging as a central driver of this demand. India has already launched the IndiaAI Mission, with an outlay of over ₹10,000 crore, to develop indigenous AI infrastructure through public-private partnerships. The Mission also aims to build foundational AI models across multiple Indian languages to support sectors like healthcare, agriculture, and governance.

Three homegrown startups—Soket AI Labs, Gnani.ai, and Gan.ai—have already been chosen to spearhead indigenous AI model development. This is a clear sign that India wants to reduce dependency on global players and build its own AI ecosystem, powered by domestic infrastructure.

Big Tech Bets on India’s Data Centre Market

India’s ambitions are being matched by big-ticket investments from global technology giants. For instance:

• OpenAI is reportedly planning to set up a 1 GW data centre in India, in partnership with local firms.

• Google has announced a $6 billion investment to establish a 1 GW data centre and allied power infrastructure in Andhra Pradesh.

Such projects not only reinforce India’s position as a global tech hub but also promise to create thousands of jobs and stimulate allied sectors like renewable energy, logistics, and construction.

The Market Outlook

The Economic Survey 2024-25 estimates that India’s data centre market could reach $11.6 billion by 2032. With government support, private investment, and rising demand converging, the next decade could see India emerge as one of the world’s largest hubs for digital infrastructure.

The Road Ahead

While the draft policy is still under consultation, its intent is clear: to make India a global destination for data centres. If implemented, the proposed tax exemptions and infrastructure support could lower entry barriers, encourage innovation, and accelerate India’s transition into a digitally powered economy.

For a country with aspirations to lead in AI, cloud, and digital services, the backbone must be strong. And that backbone is built on data centres.