India lifts tax weight to build tech muscle

FM Nirmala Sitharaman announced an array of steps aimed at getting technology and AI firms to invest billions of dollars in establishing data centres and global capability centres as well as electronics and chip manufacturing plants.

Foreign firms setting up data centres in India will not be taxed up to 2047. PM Narendra Modi said tax concession will "make India the world's data centre hub."

Electronics and IT minister Ashwini Vaishnaw said investments in data centres will rise to $200 billion, up from the current $70 billion.


It is "a bold step that strengthens India's position" as a global digital infrastructure hub, Andhra Pradesh IT minister Nara Lokesh told ET.

Measures come on the back of large data centre investments by the likes of Microsoft, Amazon and Google in 2025.

Riding the AI wave globally, the move can turn India into a "low-cost, high-scale" AI services exporter to the world.

The budget also unveiled a Rs 40,000 crore outlay for electronics component manufacturing as well as the second phase of the India Semiconductor Mission (ISM). It raised the safe harbour threshold for IT service providers to Rs 2,000 crore from Rs 300 crore, meeting a long-pending industry demand. It also announced a common safe harbour margin at a lower rate of 15.5% and bunched classification of several categories of services under an umbrella IT tag. This is set to bring to an end litigation between Indian tax authorities and global tech MNCs in which billions of dollars are tied up. It will also open the investment floodgates as newer GCCs move in, while providing tax and policy certainty for the existing ones.

"Long-term tax certainty and safe-harbour provisions address a core requirement for digital infrastructure - predictability - at a time when AI workloads are expanding rapidly," said Puneet Chandok, president, Microsoft India & South Asia.