On February 1, Finance Minister Nirmala Sitharaman proposed tax holidays—effectively zero taxation—on revenue generated from cloud services delivered abroad. Sales to Indian customers, however, will continue to be taxed at standard domestic rates.

The announcement comes as U.S. tech giants such as Amazon, Google, and Microsoft race to expand global capacity to support rapidly growing AI workloads.

At the same time, India is positioning itself as an increasingly attractive destination for new investment. The country offers a large talent pool and rising demand for cloud services, and is promoting itself as an alternative to the United States, Europe, and parts of Asia.

In October, Google announced $15 billion in investments to build AI infrastructure in India. In December, Microsoft followed with an even larger commitment of $17.5 billion, while Amazon plans to invest $35 billion by 2030.

Domestic companies are also scaling up. In November, Digital Connexion announced plans to invest $11 billion by 2030 in AI-focused data centers with a total capacity of 1 gigawatt. The Adani Group, in partnership with Google, has outlined a separate $5 billion project.

Despite the incentives, tech giants and startups may face challenges, as India continues to struggle with unstable power supply and water shortages.

The race for infrastructure

Other countries and regions are also moving aggressively to build the infrastructure needed to support AI.

In Texas, regulators have approved energy infrastructure developer Pacifico Energy to construct a 7.65-gigawatt facility to serve data centers. The project is expected to become the largest gas-powered development in the United States.

Known as GW Ranch, the facility is designed for hyperscale data centers and, unlike traditional power plants, will operate off-grid. This allows customers to draw power directly from local sources without relying on Texas’s broader electricity network

Meanwhile, British Columbia plans to require most new AI projects and data centers to compete for access to clean energy. The Canadian province is taking steps to manage the rapid surge in electricity demand.

The new competitive allocation process aims to prevent grid overload while ensuring continued reliability and affordability for existing customers.

Conclusion:

India’s proposal underscores how aggressively countries are now competing for AI infrastructure. By offering long-term tax exemptions tied to local data centers, New Delhi positions itself as a global hub for cloud and AI workloads.