The Central Board of Direct Taxes (CBDT) is prepared to deny direct tax incentives such as tax holidays or concessional corporate rates to foreign-owned data centres expanding in India. Government sources indicate that this stems from concerns about excessive central tax concessions, given that state governments are already offering significant incentives like GST exemptions, stamp duty waivers, subsidized power tariffs, capex subsidies, and hiring incentives.
Escalating Demand from Tech Giants
Major US tech firms—Google, Microsoft, and Amazon—have approached the Centre seeking direct tax breaks for their Indian data centre operations. The companies proposed incentives like a 15% concessional corporate tax rate or tax holidays on income generated. However, officials have signaled a firm stance against reintroducing such central-level benefits.
Shift Toward State-Level Incentives
Central government officials have emphasized that state-level incentives are sufficient to attract investment in digital infrastructure projects. For instance:
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Maharashtra classifies data centres as essential services, offering up to 10 years of GST relief, stamp duty waivers, low-cost power, and faster clearances.
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Karnataka and Tamil Nadu provide capex subsidies (20–25%), guaranteed power, and simplified approvals.
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Andhra Pradesh and Odisha focus on creating enabling environments, from land deals to employment incentives.
These incentives collectively present a compelling proposition, reducing the need for overlapping central-level support.
Rationale Behind CBDT’s Stance
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Preventing Fiscal Overreach: With states already offering large subsidies, repeating similar benefits at the Centre could lead to revenue erosion.
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Promotion of Decentralization: The approach encourages states to tailor incentives that reflect their own regional priorities and competition for digital investment.
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Alignment with Policy Goals: While the Centre still supports data localisation and infrastructure expansion, it prefers to channel incentives through state mechanisms, allowing the federal government to retain fiscal discipline.
Potential Alternate Support
Although direct tax incentives are unlikely, sources say policymakers are exploring non-tax incentives, such as:
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Simplified regulatory clearances
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Fast-track processing for greenfield data centre projects
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Infrastructure support like power, water, and connectivity
These structural reforms could significantly enhance project economics without straining central budgets.
Implications for Foreign CSPs
Foreign cloud service providers planning large-scale infrastructure in India—especially in emerging Tier II and III cities—will need to reassess their financial models. While states remain generous, no central-level tax relief means that:
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ROI models must account for standard corporate tax rates
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Incentive mixes will be state-dependent and vary by location
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Strategic partnerships with state governments will become vital to maximize benefits
Conclusion
The CBDT appears poised to uphold a fiscally conservative position by rejecting direct tax breaks to foreign-owned data centres, placing public reliance squarely on ₹state-level incentives. Offshore giants must now balance their expansion strategies between competitive state offers and the absence of central corporate tax relief. If supplemented with policy and regulatory facilitation, India’s digital infrastructure build-out can continue apace—though under a more decentralized incentive model.
