India may grant 20-year tax exemption, GST credit to supercharge data centres: Report

Draft policy offers tax breaks, GST relief and power support to attract global players

India is betting big on its digital backbone. The government is considering a tax exemption of up to 20 years for data centre developers, provided they meet targets on capacity addition, energy efficiency, and job creation, according to a draft of the National Data Centre Policy reviewed by Business Standard.

The draft policy, now circulated among stakeholders for consultation, is designed to position India as a global hub for cloud infrastructure, AI modelling, and digital services at a time when demand for storage and computing power is skyrocketing.

What the draft proposes

At its core, the 2025 draft policy lays out a generous incentive structure:

• Tax holiday: Up to 20 years, linked to capacity, efficiency, and employment.
• GST input tax credit: Likely to be extended to capital assets such as construction material, cooling systems, HVAC, and electrical equipment.
• Foreign players: Companies leasing or operating at least 100 Mw of capacity could gain permanent establishment status in India.
• AI push: Eligible firms may be nudged to set up AI development centres or global capability hubs in the same city as their data facilities.

Why it matters now

India’s data centre industry has grown at a blistering pace, a 24 percent compound annual growth rate since 2019. JLL estimates that 795 Mw of new capacity will come online by 2027, taking the total to 1,825 Mw. Occupancy rates are already running at 75–80 percent, signalling demand far outstripping supply.

“As India’s digital economy scales up, this demand will only intensify, underscoring the urgency for next-gen infrastructure that can support this growth,” CBRE noted in a recent report.

Land, power, and renewable energy

The draft policy also outlines how the government wants to tackle two of the sector’s biggest bottlenecks: land and power.

• Land banks: States will be encouraged to earmark land near industrial corridors, IT hubs, or manufacturing clusters for data centre parks.
• Power availability: The IT ministry will coordinate with the Ministry of Power, the Central Electricity Authority, and the Central Transmission Utility of India to ensure reliable access.
• Green energy: Developers will be nudged towards renewable sources, with proposals for uniform rules on energy storage and even the deployment of small modular reactors near large data centre hubs.