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The government's clarification that domestic and foreign investors will be treated at par when it comes to the 20-year tax holiday is an important and reassuring signal for the data centre industry, executives from firms such as Yotta and ESDS said
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Govt assures equal tax treatment for domestic, foreign data centre players; industry seeks deeper value capture
The government's clarification that domestic and foreign investors will be treated at par when it comes to the 20-year tax holiday is an important and reassuring signal for the data centre industry, executives from firms such as Yotta and ESDS said.
The announcement of a 20-year tax holiday till 2047 initially created a perception that foreign hyperscalers were being given a special runway, they said.
Domestic and foreign companies will be treated on a par when it comes to tax benefits for data centres, Union IT and electronics minister Ashwini Vaishnaw said on Saturday, citing a post-budget clarification issued by the finance ministry that offers major relief to Indian players.
“After the budget, the finance ministry has clarified that both the domestic and foreign investors will be treated at par as far as the tax benefits on the data centres are concerned,” Vaishnaw said. He said the clarification was issued following queries raised by the IT industry.
Sunil Gupta, chief executive of Yotta Data Services, said the clarification was “an important and reassuring signal” that helps correct the initial perception that foreign hyperscalers were being given a special advantage.
“That perception can unsettle domestic investor sentiment in the short term and even create pressure on Indian players to consider offshore structures,” he said, adding that the issue is more about optics than a lasting economic disadvantage.
Gupta said that the tax holiday is aimed at attracting export-oriented cloud and AI workloads and positioning India as a global digital infrastructure hub.
While foreign operators may enjoy advantages in a narrow segment of offshore contracts for overseas customers, this represents only a small portion of the market, he said.
“The bulk of long-term demand in India comes from domestic enterprises, regulated sectors, government platforms, and India-based operations of global companies, where all players operate under the same tax framework,” he said.
He also argued that safe-harbour provisions are meant to provide certainty in related-party transactions, not confer a structural edge.
However, Piyush Somani, chairman of ESDS Software Solution, cautioned against dismissing the issue as merely perceptual. “The economics tell a different story,” he said, pointing out that Indian cloud companies pay the full corporate tax rate on all revenues, while foreign hyperscalers serving global markets from India could remain tax-free until 2047.
Somani argued that while attracting large foreign investments is important, the current framework risks limiting India's role to infrastructure and operations, with profits, intellectual property and brand value remaining offshore.
“India built its IT services industry by creating Indian champions. This provision, as structured, risks positioning India as the world's ‘data centre floor' rather than the owner of the cloud economy's value,” he said.
He called for a three-pronged approach: incentives for Indian cloud companies exporting services, conditions linking foreign tax holidays to value retention in India, and success metrics that go beyond installed capacity to actual ownership of the cloud value chain.
Similar thoughts were echoed by Anuj Bairathi, chief executive of Cyfuture India, who said the clarification brings certainty and will encourage global investment, but does not automatically ensure parity in value creation.
“To truly move up the value chain, India should also incentivise Indian companies exporting cloud and AI services,” he said.
Abhinav Johri, technology consulting partner at EY India, said tax breaks for foreign cloud providers are a reasonable starting point to spur growth and accelerate digital and AI adoption.
However, he warned that without parallel support for sovereign cloud systems, local platforms and advanced skills, India risks remaining just a hosting destination.
“If implemented thoughtfully, the policy boosts competitiveness; if handled too narrowly, India may see limited long-term gains,” he said.
While the government's clarification has eased immediate concerns over differential tax treatment, industry leaders agree that the broader challenge lies in ensuring that India captures a greater share of value, intellectual property and global cloud revenues as its data centre ecosystem expands.
Source: EconomicTimes
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