Govt plans for tax exemption of up to 20 years for data centre developers

The government has proposed offering a tax exemption for up to 20 years to data centre developers, depending on their achievement of specific targets related to capacity expansion, power usage efficiency, and job creation. These incentives are outlined in a new draft of the National Data Centre Policy. MeitY is likely to request the Ministry of Finance to allow input tax credit on the GST levied on capital assets, such as data centre construction, heating, ventilation, and air conditioning.

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.

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.

The draft policy also highlights 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.