India proposes 20 year tax holiday to attract data centre investments
Budget boosts semiconductor manufacturing, electronics components and IT services certainty.
The Indian government has proposed a 20-year tax holiday to attract long-term investments in the data centre sector.
It applies to foreign companies providing cloud services to global customers using data centre services based in India.
Such companies will deliver services to Indian customers through an Indian reseller entity.
The budget proposes a safe harbour margin of 15 percent on cost where the data centre service provider in India is a related entity.
Commenting on the budget, Union Minister for Electronics and Information Technology Ashwini Vaishnaw said data centres, particularly AI data centres, play a critical role in the infrastructure layer of the AI architecture.
He said investments worth around $70 billion are already underway in the sector, with additional investment announcements of about $90 billion.
Focus on semiconductor equipment design and manufacturing
The budget announced the launch of India Semiconductor Mission (ISM) 2.0.
The new phase builds on the foundation created under ISM 1.0, which established a domestic semiconductor industry.
SM 2.0 will focus on the design and manufacturing of semiconductor equipment.
It will support the manufacturing of materials used in semiconductor production, the creation of a large semiconductor design ecosystem, and strengthening of talent development initiatives.
A budgetary provision of Rs. 1,000 crore has been made for ISM 2.0.
The allocation for the Electronics Components Manufacturing Scheme (ECMS) has increased from about Rs. 22,000 crore to Rs. 40,000 crore.
Vaishnaw said the scheme has received 149 applications so far, which is higher than the expected 50 to 55 applications.
He said the enhanced allocation will help sustain the momentum.
IT services simplification and tax certainty
The budget proposes measures to simplify tax provisions for IT services sector.
It remains the country’s largest exported services segment, with exports exceeding $220 billion.
New safe harbour provisions have been proposed for IT and IT-enabled services, with higher thresholds and competitive margins to provide tax certainty.
All IT services, including software development, IT-enabled services, knowledge process outsourcing and contract R&D services, will be grouped under a single category of information technology services.
The budget has proposed a common safe harbour margin of 15.5 percent.
The threshold for availing safe harbour is proposed to be increased from Rs. 300 crore to Rs. 2,000 crore, with approvals through an automated, rule-based process.
The budget proposes fast-tracking the Unilateral Advance Pricing Agreement process for IT services and extending the facility of modified returns to associated entities entering into such agreements.