New Delhi: India is rapidly positioning itself as a trusted global data hub, backed by scale, policy momentum, and a growing digital economy.
According to a PwC India report titled ‘Transforming India into a trusted global data hub: Future-ready tax considerations for data centres’, the country’s installed data centre capacity, currently at about 1.5 GW, is expected to expand at a 20-24% CAGR between 2025 and 2035, reaching nearly 14 GW by 2035. This expansion is being driven by surging data consumption, cloud adoption, AI workloads, and the government’s sustained push to strengthen digital public infrastructure.
India’s digital economy already accounts for 11.74% of GDP ($0.402 trillion) in FY 2022-23 and is projected to grow at nearly double the pace of the overall economy, potentially contributing around 20% of national income by FY 2029-30, surpassing agriculture and manufacturing.
The PwC India report highlights that demand for data centres has increased nine-fold, supported by hyper-scalers, co-location providers and edge data centres catering to low-latency use cases in Tier-II and emerging cities. More than 90% of current capacity is concentrated in metros such as Mumbai, Chennai, Delhi NCR, Bengaluru, Pune, Hyderabad and Kolkata, though decentralization is gradually underway.
Core Pillar
The report notes that India’s data centre ecosystem has evolved from being “back-end support” to becoming a “core pillar of the digital economy”, powering cloud services, e-governance, FinTech, commerce, media and increasingly AI-driven workloads. Global trends such as GPU-dense computing, liquid cooling, modular expansion, 5G rollout and latency-sensitive applications are reshaping infrastructure requirements. These factors favour “forward-compatible facilities capable of higher rack densities” and distributed edge architectures.
India’s comparative advantages — lower construction costs relative to hubs like Singapore and South Korea, availability of skilled talent, and strong clean power potential — further strengthen its investment case.
From a policy perspective, PwC India underscores that “the direction appears to be clear”. The Digital Personal Data Protection (DPDP) Act, 2023, along with the DPDP Rules, 2025, has reinforced trust and accountability in data processing. The draft National Data Centre Policy, recognition of data centres as infrastructure assets, and TRAI’s recommendations for single-window clearances and incentives have improved bankability and investor confidence. The report estimates that the sector could attract investment commitments of up to $70 billion by FY 2035, led by hyper-scalers, global operators, real estate developers and institutional investors.
Tax Regime
Despite this momentum, the report emphasizes that tax certainty remains critical to sustaining growth. Data centres are described as “highly specialized buildings” where IT hardware, cooling, power and safety systems are deeply integrated, creating ambiguity around depreciation rates.
Currently, assets may fall under 10% for buildings, 15% for plant and machinery, or 40% for computers, often leading to disputes. PwC India argues that given rapid technological obsolescence, “there may be a need for a more favourable depreciation regime”.
If tax, regulatory and sustainability frameworks evolve in tandem with technology, India can convert its “digital scale into durable economic advantage” and firmly establish itself as a trusted global hub for compute, connectivity and data-driven innovation.
Direct tax challenges also include ambiguity around income characterization for cloud and hosting services, withholding tax exposure, permanent establishment (PE) risk for foreign players, and the applicability of significant economic presence (SEP) thresholds, which are currently set at ₹2 crore of revenue or 300,000 users.
The report notes that these thresholds may be “low in the context of the substantial scale of data centre and cloud operations” and difficult to track in practice. On sustainability, the deductibility of expenses on carbon credits and Renewable Energy Certificates remains unclear, even as operators pursue net-zero commitments in one of the world’s most energy-intensive sectors.
On the indirect tax front, PwC India highlights a major positive development: a CBIC circular clarifying that data hosting and infrastructure support services are not immovable property – based or intermediary services, but exports where the recipient is located overseas. This clarification has enabled refunds of unutilized GST credits.
However, unresolved issues remain around input tax credit (ITC) on construction-related activities. The report argues that hyperscale data centres should qualify as “plant and machinery” rather than mere civil structures, given their purpose-built and inseparable nature. Denial of ITC on such capital-intensive projects, it notes, “significantly increases costs” and undermines competitiveness.
GST Treatment
Another emerging friction point is the GST treatment of 99-year leasehold rights, typically acquired through upfront premiums. While assignments by state industrial corporations are exempt, private-to-private transfers are often taxed at 18%, despite recent High Court rulings holding that assignment of leasehold rights is not liable to GST.
PwC India calls for statutory clarity to avoid litigation and stranded credits. The report also advocates calibrated relaxations under the SEZ framework for export-oriented data centres, including fewer physical inspections and digital-first compliance, recognizing the sensitivity and mission-critical nature of such facilities.
Looking ahead, the report outlines a phased vision. In the short to medium term, it calls for finalizing the National Data Centre Policy, issuing comprehensive tax guidance, and rationalizing GST rules. In the medium term, it suggests targeted incentives for green infrastructure, such as accelerated depreciation and investment-linked deductions, aligned with ESG and climate goals. In the long term, PwC India proposes bold concepts such as “data embassies” under sovereign protections and integrated “data cities” that combine data centres, cloud providers, AI labs and digital services under a unified policy and tax regime.
As the PwC India report concludes, if tax, regulatory and sustainability frameworks evolve in tandem with technology, India can convert its “digital scale into durable economic advantage” and firmly establish itself as a trusted global hub for compute, connectivity and data-driven innovation.