The Central Board of Direct Taxes (CBDT) has asked the Ministry of Electronics and Information Technology (MeitY) to provide detailed clarifications on its proposal to offer long-term tax incentives for data centres, as the government evaluates how to promote large-scale digital infrastructure without risking revenue loss.
According to government sources, CBDT has sought a clear definition of what constitutes a "data centre" and wants MeitY to distinguish between facilities involved in data storage, processing, cloud computing and analytics. "We have asked MeitY to clearly define data centres and specify the categories they want to cover. Only after that can we assess the tax implications," a senior official said.
Need for a Precise Definition
Officials said one of the biggest challenges is defining the types of facilities that should qualify for tax benefits. Data handling activities today range from simple storage units to large-scale facilities offering software, infrastructure, and platform services."
Without a clear definition, there is a risk of misuse. We cannot have companies with just a few servers claiming to be data centres," the official said, adding that well-structured conditions would be essential to avoid tax disputes and revenue leakages.
Eligibility Thresholds Under Examination
CBDT has also asked MeitY to outline measurable thresholds-such as minimum capital investment, scale of operations, or turnover, that can help filter genuine players from smaller, ineligible entities. "Thresholds based on capex, size or turnover will ensure that incentives go only to large and serious investors," an official said.
MeitY's proposal is part of the upcoming National Data Centre Policy, which aims to position India as a global hub for large-scale data infrastructure. However, the Finance Ministry remains cautious, noting that any new tax breaks must fit within India's simplified tax framework. Since 2019, the government has moved toward reducing exemptions to minimise litigation and simplify compliance.
Balancing Incentives With Policy Consistency
Officials acknowledged that data centres play a key role in India's digital economy, especially with growing data-localisation requirements. "If data centres are considered critical infrastructure for digital growth and data sovereignty, targeted incentives may be justified," the official said. "But exemptions must be designed very carefully."
Push for Data Localisation and Investment
MeitY's proposal seeks to attract both domestic and foreign investment into high-capacity data storage and processing facilities, in line with India's broader data localisation and privacy framework.
"The focus is on encouraging large data centres to set up in India in alignment with the government's push for data protection," a government source said.
What Exactly Is a Data Centre?
A data centre is a specialised facility that houses computer systems, servers, network equipment and storage infrastructure. These centres provide secure, uninterrupted data processing and storage with high levels of redundancy and cybersecurity. As India accelerates its Digital India mission and more services move to cloud platforms, data centres are becoming vital to national digital infrastructure and economic growth.
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