21-Year Tax Holiday, 15% Safe Harbour: Decoding India’s Big Data Centre, AI Bet

India has rolled out a major policy push to attract global investments in data centres and artificial intelligence (AI), offering long-term tax incentives and regulatory certainty. The move signals the government’s intent to position India as a global hub for digital infrastructure and AI-led innovation.

Here’s a simple breakdown of what the announcements mean, who benefits, and why it matters.

🔍 What Is the 21-Year Tax Holiday?

Under the new framework, eligible data centre and AI infrastructure projects may receive a tax holiday of up to 21 years, structured in phases:

• Initial years: Complete or substantial exemption on corporate income tax

• Later years: Concessional tax rates instead of the standard corporate tax

Why it matters

Data centres are capital-intensive projects with high upfront costs and long payback periods. A long tax holiday:

• Improves project viability

• Attracts long-term global investors

• Encourages hyperscale and cloud players to set up in India

📊 What Does 15% Safe Harbour Mean?

The 15% safe harbour rule provides certainty on transfer pricing for multinational companies.

In simple terms:

• If profit margins stay within the prescribed 15% range

• Tax authorities will not question pricing structures between group companies

Why this is important

• Reduces tax litigation

• Improves ease of doing business

• Offers predictability to global tech firms operating across borders

🤖 Why Data Centres and AI Are a Strategic Focus

India’s digital economy is expanding rapidly due to:

• Rising internet penetration

• Growth in cloud computing

• Increasing use of AI across sectors like finance, healthcare, media, and governance

Data centres are the backbone of AI, enabling:

• Large-scale data processing

• AI model training

• Secure storage of sensitive data

🌍 Global Context: Competing With the Best

Countries like the US, Singapore, and Ireland already offer attractive incentives for data centres. India’s new policy aims to:

• Compete globally on cost and scale

• Retain data domestically

• Support sovereign AI capabilities

🏗️ Who Stands to Benefit?

• Global cloud service providers

• AI startups and research firms

• Indian infrastructure developers

• State governments hosting large data centre parks

The policy may also create jobs in construction, IT operations, cybersecurity, and energy management.

⚠️ Key Challenges to Watch

While incentives are attractive, experts note that success will also depend on:

• Reliable power supply

• Water sustainability

• High-speed connectivity

• Clear data protection regulations

Policy execution at the state level will be critical.

🧠 The Big Picture

India’s 21-year tax holiday and 15% safe harbour signal a long-term commitment to becoming a digital and AI powerhouse. By reducing tax uncertainty and improving returns on investment, the government hopes to draw large-scale global players while strengthening domestic capabilities.

If implemented effectively, the move could reshape India’s role in the global data and AI economy over the next two decades.