How India’s 2047 tax exemption could reshape AI data centers

A single paragraph in India’s new budget attempts to solve a problem U.S. cloud executives rarely put on a slide: the fear that a booming market can turn into a decades-long tax fight once the servers are running. It is the kind of uncertainty that can freeze billion-dollar decisions, even when the demand is obvious.

In the 2026–27 budget speech, Finance Minister Nirmala Sitharaman proposed a tax holiday through 2047 for foreign companies that use India as a base to provide cloud services to the rest of the world. The rule draws a bright line between overseas revenue and India revenue.

If you sell to Indian customers, you must go through a local reseller. If you sell to the world, the income is yours.

This combination is why the story matters outside of New Delhi. It is not just a tax break. It is a signal that India wants to be treated as an export hub for AI, with rules designed to eliminate the gray areas that foreign investors fear most.

What the proposal actually says 

The policy is narrower than a blanket “zero tax” zone, and that nuance makes it easier to understand. The holiday targets foreign providers who sell cloud services to global clients while buying data center capacity in India. Revenue from Indian customers is explicitly carved out, the budget says those sales must go through an Indian reseller and be “taxed appropriately”.

The second piece is designed to prevent messy legal battles. India proposed a 15% “safe harbor” margin for data center services provided by related entities. In plain English, this is a pre-agreed markup that reduces the chance of transfer-pricing disputes after a company has already sunk billions into building infrastructure.

Why this matters for U.S. tech giants 

For the hyperscalers and the AI supply chain, the big question is where the next massive blocks of compute will be built. Foreign firms have long worried that if they serve the world from India, the government might later claim a right to tax that global income. This proposal is designed to remove that specific risk through 2047.

India is trying to compete on predictability as much as price. The message to the market is simple: if you use India as an export base, the country wants that to look like a stable, fifty-year business, not a trap that gets re-litigated once the concrete is poured.

The real bottleneck: Power and water 

A long tax holiday does not guarantee that AI capacity will arrive on schedule. The real limit is physical: power availability, grid stability, and cooling. These constraints hit AI hard because high-density clusters consume massive amounts of electricity and water, making local infrastructure the true governor on growth.

This is where the story shifts from policy to execution. If the power and permitting can keep up, India’s proposal becomes a clean win for U.S. firms looking to place global workloads. If the grid creates a bottleneck, the tax holiday is still nice to have, but it won’t solve the primary problem.

The next phase isn’t about whether the proposal looks good on paper. It is about how the final rules work in practice, and whether the physical buildout can clear the hurdles that decide where AI compute actually lands. The signal from India is huge.

The follow-through will determine if “through 2047” becomes a magnet for global AI workloads, or just an ambitious line in a budget speech.