Data centre sector gets policy boost as LS clears taxation amendment Bill

The Bill recognises leased data centres under the tax framework and removes notification requirements, with experts expecting faster investment and lower set-up costs

The Lok Sabha's passage of the Taxation and Other Laws (Amendment) Bill, 2026 on Thursday is expected to accelerate investments in India's growing data centre sector, industry experts said.

 

The Bill recognises leased facilities under the tax framework and removes notification requirements for eligible foreign companies and data centres.

 

The legislation removes the requirement for separate central government notification for foreign companies and specified data centres for availing the existing tax exemption until March 31, 2047.

 

It expands the definition of “specified data centre” to include facilities operated by an Indian company under a lease model of ownership, bringing such facilities within the existing tax framework.

   

“The proposed amendments under the Bill are a welcome step towards supporting India's next phase of digital infrastructure growth, with data centres set to play an increasingly important role in the country's digital economy,” said Amit Sarin, managing director (MD) of Anant Raj.

 

He added, “As demand for artificial intelligence (AI), Cloud services and data storage continues to increase, the sector requires a policy framework that is practical, predictable and aligned with evolving business models.”

 

Sarin said the measures could attract greater global investment while supporting the expansion of hyperscale and AI-ready data centre capacity in India.

 

He added that the reforms would also benefit Anant Raj, which has committed to invest more than ₹20,000 crore in its data centre and Cloud services business over the next four to five years.

 

Ravi Mahajan, tax partner at EY India, said the amendments reduce approval requirements for both foreign companies and Indian entities in the supply chain, cutting uncertainty and speeding up investments.

 

“In addition, allowing lease operation of such a data centre by the Indian company rather than mandating ownership would ease set-up costs. This will improve the competitiveness of Indian data centres from a global markets standpoint,” Mahajan said.

 

Shobhit Agarwal, chief executive officer (CEO) of Anarock Capital, said the biggest impact would come from expanding the definition of specified data centres to include leased, Indian-operated facilities and removing the requirement for dual government notifications.

 

“It directly fixes a structural problem that had been discouraging leased-model operators for a long time,” Agarwal said.

 

He added that the changes, coupled with the tax holiday until 2047 for eligible foreign companies procuring data centre services from India, would lower investment risks and speed up capital deployment.

 

“Data centres are exceptionally capital-intensive assets, and a mandatory ownership-and-operation model can unnecessarily lock substantial capital into land and shell infrastructure. By allowing an operator to lease the facility, the amendment enables a functional separation between the real-estate owner, infrastructure investor and data-centre operator,” Tushar Kumar, advocate, Supreme Court of India, said.  

 

SR Patnaik, partner (head-taxation) at Cyril Amarchand Mangaldas, said recognising leased data centre models reflected the commercial architecture of the industry, where ownership of land, buildings, power infrastructure and operations are often split across different entities.

 

He said the amendment could encourage sale-and-leaseback transactions, dedicated data centre platforms, infrastructure funds, and eventually, specialised real estate investment trust (Reit) or infrastructure investment trust (InvIT)-style monetisation models.

 

Experts, however, said the next phase of reforms would need to focus on implementation. Industry experts believe that further rationalisation of tax and infrastructure incentives, eligibility conditions, and safe harbour provisions should be clearly defined.

 

Patnaik added that the success of reforms would depend on simple and stable implementing rules covering taxation, land, power and other regulatory aspects.

 

“The next priority should be greater clarity in implementation, a level-playing field for domestic operators, and further rationalisation of tax and infrastructure incentives to sustain investment momentum,” said Raheel Patel, partner, Gandhi Law Associates.

 

According to property consultant Savills India, new data centre capacity additions in India surged to 258 megawatt (Mw) IT (data centre capacity) in the first half of 2026, compared to 162 Mw IT in H1 of 2025, up 59.3 per cent, taking the country's total operational stock to 1.8 Gw IT.

 

India’s data centre market is set for significant expansion, with total capacity projected to nearly quadruple and reach over 7 GW IT by 2030.

 

Annual average capacity additions are expected to accelerate to 350-500 Mw IT between 2026 and 2030, nearly double the 150-250 Mw IT added annually during 2022 to 2025.

 

In 2026, both capacity additions and absorption are expected to surpass 600 Mw IT, according to Savills India.