India proposes tax exemptions for foreign data centers

The Government of India has proposed multiple amendments to the Income-tax Act, 2025, including changes affecting foreign companies using Indian data centers, foreign companies supplying equipment to contract manufacturers, rough diamond sales, business trust dividend taxation, and eligible investment funds.

• Data center services: the Bill proposes to omit notification conditions for both the foreign company and the specified data center, allow a lease model for the Indian operator, and require compliance with prescribed conditions; the existing exemption for foreign companies procuring data center services continues up to 31 March 2047.
• Other tax changes: the exemption for foreign companies supplying capital goods/equipment/tooling to contract manufacturers is extended 10 more years to tax year 2040-41; a new 15-year exemption to 31 March 2041 is proposed for foreign mining companies selling rough diamonds and for foreign companies storing components in custom bonded areas for specified electronic goods; unit-holder dividend exemption is also extended to SPVs in the new regime, with a 15% additional surcharge on such SPVs.