India Plans 20-Year Tax Incentives to Boost Data Centre Investments

The central government has proposed offering tax exemptions of up to 20 years for daat centre developers, according to the draft of National Data Centre Policy, which has been reviewed by Business Standard. However, these exemptions would be available if they meet targets on capacity addition, power usage effectiveness, and employment generation.

The report stated that MeiTy (Ministry of Electronics and Information Technology) is likely to urge the Ministry of Finance to allow input tax credit (ITC) on the GST levied on capital assets. These include data centre construction, ventilation, heating, air conditioning equipment, and other electrical systems used in data centres.

A recent JLL report revealed that India’s data centre industry is projected to add 795 megawatt (Mw) of new capacity by 2027. This will take the total to 1,925 Mw. As of now, the industry has grown at a CAGR of 24% since 2019.

Foreign firms leasing or operating at least 100 MW of capacity could be granted permanent establishment status in India, encouraging deeper investments. The policy also promotes AI development by incentivising eligible companies to set up AI centres or global capability hubs alongside their data facilities.

“This will help create new jobs as well as strengthen domestic capacity in advanced technologies, such as AI, Cloud computing, and cybersecurity, not just in metro cities but also in Tier-II and Tier-III towns,” an official told Business Standard.

"Power is one of the key resource demands for data centres. It is imperative for us to encourage newer data centres to use renewable energy as much as possible. We have proposed some changes...," the official added.

The draft also proposes that states facilitate data centre development by allocating land close to industrial corridors, IT hubs, or manufacturing clusters, with designated zones specifically set aside for such infrastructure, the report said.

Additionally, it recommends that the IT ministry work closely with the Ministry of Power, the Central Electricity Authority, the Central Transmission Utility of India, and other relevant government agencies to ensure reliable power supply for these centres.

CBRE, in its recent report, said that data centres are not just infrastructure anymore—they are the backbone of India’s digital future, empowering businesses to innovate, scale, and thrive.

"The proliferation of mobile internet usage and the swift deployment of 5G networks have fuelled a surge in data consumption. Businesses are transitioning to digital platforms faster than ever, making reliable, scalable data storage an indispensable part of operations," it added.