The Central Board of Direct Taxes (CBDT) has sought detailed clarifications from the Ministry of Electronics and Information Technology (MeitY) on its proposal to extend long-term tax incentives to data centres in India, amid deliberations on how such benefits can be structured to attract investment while safeguarding revenue.
Government sources said CBDT has asked MeitY to precisely define what qualifies as a “data centre” and distinguish between facilities engaged in data storage, processing, or analytics. “We have sought more clarity from MeitY on how they define data centres and which categories they intend to cover. Once that is clear, we can evaluate the proposal from a tax policy standpoint,” a government source told Moneycontrol.
Defining data centre
One of the key challenges, sources said, lies in identifying the types of facilities that may be eligible for the proposed incentives. “One of the big issues is understanding what a data centre really is. There’s a wide spectrum – from facilities that only store data to those offering software, infrastructure, or platform services. We need to decide who exactly we are referring to before extending any tax benefits,” the source explained.
Without well-defined eligibility criteria, there is a risk of misuse, he said. “Tax policy must clearly define who qualifies for an exemption. We cannot have a situation where any company with a few servers claims to be a data centre. The definition has to be precise and backed by clear conditions,” he added.
Need for thresholds
CBDT has also asked MeitY to spell out parameters such as investment size, operational scale, or turnover that could help determine eligibility. “Thresholds could be based on capital expenditure, size, or turnover – something that ensures only large, genuine players benefit and not every entity with a server room,” the person said. He added that such safeguards would help prevent revenue leakages and disputes.
While MeitY has proposed tax exemptions for data centre developers under its upcoming National Data Centre Policy, the Finance Ministry has maintained that any such measure must align with the government’s broader tax framework. “Since 2019, we have been transitioning towards a simplified structure with fewer deductions and exemptions. The more exemptions you give, the more claims and litigation you create,” the source said.
At the same time, officials acknowledged that targeted incentives may be justified if data centres are deemed critical to India’s digital infrastructure and data sovereignty goals. “If the government decides that data centres are important enough, we will support the exemption. But it must be very well thought out,” he noted.
Data localisation
The MeitY proposal aims to attract domestic and foreign investment in large-scale data infrastructure and aligns with India’s broader data localisation framework. “MeitY’s proposal is aimed at attracting more data centres to set up in India, which aligns with the government’s emphasis on data privacy,” the source said, adding that the matter needs to be studied carefully from a tax policy perspective.
What is a data centre?
A data centre is a specialised facility that houses computer systems and related components such as telecommunications and storage infrastructure. These facilities are designed to ensure reliable data processing and storage with high levels of security and redundancy. In India, data centres have gained strategic importance under the government’s Digital India initiative and emerging data-localisation norms, as more sensitive information and digital services migrate to cloud infrastructure.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
