Startup Originals Team
The Indian government is proposing a major incentive package for data centre developers through a draft of the National Data Centre Policy. If adopted, the proposal would offer up to 20 years of tax exemption, along with GST input tax relief, for data centres that meet certain performance and capacity benchmarks. The move aims to accelerate infrastructure growth for cloud, AI, and digital services across India.
Key Incentives Proposed
- Long-Term Tax Exemption
Data centre developers could receive tax exemption for up to 20 years, provided they satisfy targets related to capacity expansion, power efficiency, and job creation. - GST Input Tax Credit on Capital Assets
The draft policy suggests allowing Input Tax Credit (ITC) under the Goods & Services Tax (GST) for capital expenditures, like construction costs, heating, ventilation, air conditioning (HVAC) systems, electrical equipment, etc. This helps lower the upfront cost burden.
Eligibility Criteria & Performance Targets
- Developers must meet targets for capacity addition, meaning data centres need to scale up MW power capacity.
- They also have to meet power usage effectiveness standards (i.e. efficiency in power consumption vs output).
- Employment generation is another mandatory criterion. Jobs must be created as part of operations.
Other Supportive Measures & Policy Features
- Foreign Players & Capacity Threshold
Foreign firms that operate or lease at least 100 MW of data centre capacity via Indian firms may be granted permanent establishment status, easing tax status considerations. - Promoting AI & Global Capability Hubs
Eligible data centres might also be encouraged to set up AI development or modelling centres or global capability centres (GCC) alongside their data centre operations. - Land & Power-Related Facilitation
The policy proposes that states earmark land near industrial corridors, IT hubs, or manufacturing clusters for data centre zones. Also, ensuring stable and sufficient power supply is a priority, involving coordination between the Ministry of Power, Central Electricity Authority, and other agencies. Renewable energy use is encouraged.
Why India is Doing This Now
- Rapid Growth of Data Centre Demand
The data centre sector has been growing fast (24% CAGR since 2019). India is projected to add about 795 MW new data centre capacity by 2027, bringing total capacity to 1,800-1,900 MW. - High Occupancy and Infrastructure Pressure
Many existing centres run at 75-80% occupancy, indicating demand is catching up to supply. To sustain growth, infrastructure, regulation, and incentives must keep pace. - Global Digital & AI Push
As cloud services, AI, machine learning, cybersecurity, and related fields expand, India is competing to become a digital infrastructure hub. Tax incentives make investment more attractive.
Challenges & Things to Watch
- Ensuring the eligibility criteria are strict enough so that exemptions benefit centres that deliver and not just get tax breaks.
- Balancing renewable energy requirements with capacity growth, because power is a big cost for data centres.
- State cooperation: land acquisition, power, and local approvals may pose bottlenecks if not handled well.
- Monitoring and compliance: centres claiming incentives must periodically prove compliance with capacity, efficiency, job targets.
Conclusion:
If this draft policy becomes final, India could unlock a major boost in its data centre infrastructure by offering up to 20 years of tax relief tied to clear performance benchmarks. For developers, this would lower costs and risk for new investments. For India, it could mean stronger digital infrastructure, local job creation, and competitiveness in cloud, AI, and data services. It’s a key policy move worth watching closely.
