A Massive Push for India's Digital Infrastructure and Semiconductors
Union Minister for Electronics and Information Technology (MEITY), Shri Ashwini Vaishnaw, announced that investments of USD 70 billion are already underway in India's digital infrastructure space, with an additional USD 90 billion announced. This combined pipeline of approximately USD 160 billion positions India as a premier global destination for AI and cloud infrastructure. The Budget 2026-27 positions AI data centers as critical infrastructure for India's AI architecture and lays the groundwork for India to become a global hub for digital infrastructure through 2047.
India's data center capacity currently stands at approximately 1.4 to 1.5 GW operational as of mid-2025, with another 1.4 GW under construction and 5 GW in advanced planning stages. The government projects total capacity will reach 4.5 to 6.5 GW by 2030 to meet surging AI demand. Major hyperscalers are driving this expansion: Adani has announced a USD 100 billion AI infrastructure plan targeting 5 GW sustainable capacity by 2035, including a 600-acre gigawatt-scale campus in Visakhapatnam partnering with Google. Google itself committed USD 15 billion as part of the America-India Connect for AI infrastructure. Yotta is deploying 20,000 Nvidia Blackwell Ultra chips at its Greater Noida hyperscale campus, forming one of Asia's largest AI superclusters. Blackstone raised USD 1.2 billion for its AI cloud platform Neysa in Mumbai, supporting 20,000 GPU deployment. Total investments could reach USD 100 billion by 2027.
The semiconductor ecosystem is equally ambitious, with 10 major plants nationwide approved as of December 2025, and four of these expected to start production in 2026. The semiconductor mission focuses on expanding domestic chip manufacturing and design capabilities to produce specialized semiconductors for AI, including GPUs and accelerators needed by data centers.
This guide breaks down the key policy measures, explains what they mean for NRI investors and entrepreneurs, and highlights the investment opportunities emerging from these reforms.
Tax Holiday Until 2047 for Cloud and Data Center Operations
The headline measure from Budget 2026-27 is a tax holiday extending all the way to 2047 for foreign companies that provide cloud services globally through Indian data centers. This represents a 20-year commitment to attract and retain global hyperscalers and cloud service providers.
Here are the key conditions and details:
- The foreign company must serve Indian customers through an Indian reseller entity. Direct selling to Indian clients without this reseller structure will not qualify for the tax holiday.
- When the Indian data center provider is a related entity of the foreign company, a safe harbour margin of 15% on costs applies. This means transfer pricing disputes get minimized because the tax authorities accept this predefined margin as arm's length.
- The tax holiday and safe harbour provisions take effect from FY 2026-27 (April 1, 2026) and run through the 2046-47 financial year.
- The tax holiday applies to both greenfield projects and expansions or upgrades of existing facilities. No explicit sunset clauses exist beyond the 2047 end date.
- Large scale data center projects exceeding 100 MW of new electrical load qualify for prioritized and streamlined electricity tariffs, single window clearances for approvals, priority grid allocation, and land allocation support via recent government orders.
- The incentive specifically targets export-oriented cloud services, meaning services sold to customers outside India or to Indian customers as part of a global cloud platform.
Why This Matters for NRIs
If you are an NRI who owns or holds a stake in a foreign company that uses Indian data center infrastructure, this tax holiday is designed with your situation in mind. Your foreign entity can provide cloud services globally through Indian data centers and enjoy tax free operations until 2047, provided you route services to Indian clients through an Indian reseller.
The 15% safe harbour margin on costs also reduces the risk of transfer pricing scrutiny when your foreign entity transacts with a related Indian data center company. This gives you policy certainty for long term capital allocation decisions.
If you are an NRI providing services through an Indian data center to global customers, you will not have a Permanent Establishment (PE) in India if the services are truly export-oriented and delivered via the Indian reseller entity. This means you avoid Indian corporate tax on those revenues.
Direct Investment in Data Center Companies
You can invest in Indian companies that operate or develop AI data centers. These companies benefit from the tax holiday framework and the USD 160 billion investment pipeline. Look for listed companies in the data center, cloud infrastructure, and telecom sectors that are expanding their AI capabilities. India allows automatic FDI approval up to 100% for IT and electronics sectors, so you do not need government permission for most investments in these areas.
Data center hubs are emerging across India: Maharashtra hosts 85 centers, Tamil Nadu 35, and Karnataka 32 (mostly in Bangalore). Mumbai, Chennai, and Hyderabad are emerging as major AI hotspots. However, be aware that data centers generate significant power and water demands, creating potential heat islands (up to 9°C local temperature rise) and water crises in hubs like Bangalore.
India Semiconductor Mission 2.0: A Deep Dive
Building on ISM 1.0, which the Union Cabinet approved in December 2021 with an incentive framework of Rs. 76,000 crore, the Budget launches India Semiconductor Mission 2.0 with significantly enhanced scope and funding.
The India Semiconductor Mission (ISM) serves as the nodal agency for the efficient and seamless implementation of semiconductor and display schemes. Its stated vision is to build a vibrant semiconductor and display ecosystem to enable India's emergence as a global hub for electronics manufacturing and design.
ISM 1.0 expanded India's semiconductor capabilities across fabrication, assembly, testing, and design. ISM 2.0 builds on this foundation with a sharper focus on four strategic pillars: Equipment and Materials, Design IP, Supply Chains, and R&D Centres. This represents a shift from India's 20% global semiconductor design contribution toward manufacturing leadership and full ecosystem control.
Approved Projects and Investment Pipeline
As of December 2025, 10 projects with a total investment of Rs. 1.60 lakh crore have been approved across 6 states. These projects span:
- Silicon fabrication units
- Silicon carbide fabs
- Advanced and memory packaging facilities
- Specialized assembly and testing infrastructure
Major Milestones and Recent Developments
The semiconductor ecosystem has hit several tangible milestones in recent months, signalling that projects are moving from approval to execution:
- February 28, 2026: Prime Minister Shri Narendra Modi inaugurated Micron Technology's Semiconductor Assembly, Test and Packaging (ATMP) facility in Sanand, Gujarat. This marks a significant moment because it demonstrates that a global semiconductor giant has moved from commitment to operational facility on Indian soil.
- February 21, 2026: The Prime Minister participated in the groundbreaking ceremony of the HCL Foxconn Joint Venture project, adding another major global partnership to India's semiconductor manufacturing landscape.
- January 2026: Union Minister Shri Ashwini Vaishnaw interacted directly with semiconductor chip design companies approved under the DLI Scheme, signalling continued high level policy attention.
- November 2025: The Government of India announced an investment of Rs. 4,500 crore for modernization of SCL Mohali, with an assurance that it will not be privatised. Additionally, the government announced it is democratizing chip design amongst Indian universities with access to industry grade EDA tools and Multi Project Wafer (MPW) fabrication services.
- September 2025: The first set of Made in India chips was presented to Prime Minister Modi during Semicon India 2025 in New Delhi. Union Minister Ashwini Vaishnaw called it a moment of pride.
- August 2025: One of India's first end to end OSAT (Outsourced Semiconductor Assembly and Test) Pilot Line Facility launched in Sanand, Gujarat.
- March 2025: Fabrication Services Agreement (FSA) signed between ISM, CG Power and Industrial Solutions Ltd., and CG SEMI Pvt. Ltd.
- January 2025: FSA signed between ISM, Tata Electronics Private Limited, and Tata Semiconductor Manufacturing Private Limited.
Financial Allocation
The government has made a provision of Rs. 1,000 crore for ISM 2.0 for FY 2026-27, with a total financial outlay of Rs. 8,000 crore under the Modified Programme for Development of Semiconductor and Display Manufacturing Ecosystem in India. This funding emphasizes industry led research and training centres to drive technology development and create a skilled workforce.
The broader Phase 1 framework carries a total outlay of Rs. 76,000 crore, providing the foundational incentive structure for the entire semiconductor and display ecosystem.
ISM Scheme Components in Detail
The ISM operates four major scheme categories, each with specific fiscal support structures:
#### 1. Semiconductor Fabs
The scheme for setting up semiconductor fabs in India extends fiscal support of up to 50% of project cost on a pari passu basis to approved applicants. The Expenditure Finance Committee, chaired by Secretary of the Department of Expenditure, appraises each project and determines the structure and quantum of fiscal support.
This scheme supports at least 1 silicon CMOS wafer fabrication unit with Rs. 4,000 crore in investment and 1,500 direct jobs. It covers multiple technology nodes for logic chips, memory, analog and mixed signal chips, power ICs, and microcontrollers.
#### 2. Display Fabs
Similar to semiconductor fabs, the display fab scheme extends fiscal support of up to 50% of project cost on a pari passu basis. The same Expenditure Finance Committee appraisal process applies. It offers support to establish AMOLED and LCD display fabrication units in India.
#### 3. Compound Semiconductors and ATMP
This scheme covers Compound Semiconductors, Silicon Photonics, Sensors (including MEMS) Fabs, Discrete Semiconductor Fabs, and Semiconductor ATMP/OSAT facilities. It extends fiscal support of 50% of capital expenditure to these units.
The scheme targets 9 units with Rs. 11,000 crore in total investment and 3,000 jobs. It covers advanced materials like silicon carbide (SiC), gallium nitride (GaN), and silicon photonics, which power everything from electric vehicles to 5G networks.
#### 4. Design Linked Incentive (DLI) Scheme
The DLI Scheme offers financial incentives and design infrastructure support across various stages of development and deployment of semiconductor designs for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems and IP Cores, and semiconductor linked designs over a period of 5 years.
Specifically, the DLI provides:
- Up to 50% reimbursement of eligible design expenditure, capped at Rs. 15 crore (INR 150 million) per project, through the Product Design Linked Incentive.
- A deployment linked incentive covering approximately 4 to 6% of net sales turnover over 5 years for design projects.
- Access to advanced Electronic Design Automation (EDA) tools, with approximately 2.25 crore tool hours already recorded across participants.
Key Scheme Targets
ISM 2.0 breaks down into three major scheme components with specific investment and employment targets:
| Scheme Component | Investment Target | Employment Target | |---|---|---| | Modified Scheme for Semiconductor Fabs | Rs. 4,000 crore | 1,500 persons | | Compound Semiconductors, Silicon Photonics, Sensors, Discrete Fabs, and ATMP/OSAT Units | Rs. 11,000 crore | 3,000 persons | | Design Linked Incentive Scheme | 30 design companies supported | 200 persons in semiconductor design manpower, 10 semiconductor IP cores developed |
Design Ecosystem Progress
The Design Linked Incentive Scheme, active since December 2021, has already delivered tangible results:
- 24 semiconductor design startups supported so far
- Nearly Rs. 430 crore in venture capital funding attracted into these startups
- Applications range from microprocessors and satellite communication to energy metering, surveillance, and IoT technologies
- Advanced Electronic Design Automation (EDA) tools have recorded approximately 2.25 crore tool hours of access
- The Government of India is democratizing chip design amongst Indian universities with access to industry grade EDA tools and Multi Project Wafer (MPW) fabrication services, as announced in November 2025
- The scheme has already achieved 16 tape outs completed, 6 ASIC chips fabricated, 10 patent filings supported, and trained over 1,000 engineers
What This Means for NRI Investors
If you are an NRI considering investments in India's AI infrastructure and semiconductors, the Budget 2026-27 opens several pathways:
1. Semiconductor and Chip Manufacturing
ISM 2.0 creates opportunities in semiconductor design, fabrication, and manufacturing. NRIs can invest in Indian semiconductor companies that qualify for PLI schemes or other ISM incentives. The DLI Scheme particularly attracts chip design startups, many of which are seeking venture capital funding.
2. Indirect Exposure Through IT and Tech Stocks
Major Indian IT services companies (TCS, Infosys, Wipro, HCL Tech) are expanding their AI and cloud infrastructure offerings. The data center boom will drive demand for their services, making them indirect beneficiaries of this policy.
3. Data Center REITs and Infrastructure Funds
Yotta is preparing for an IPO and seeking pre-IPO funding opportunities. Data center REITs offer dividend income and capital appreciation potential as India's data center capacity expands from 1.4-1.5 GW to 4.5-6.5 GW by 2030.
4. Foreign Direct Investment (FDI) Routes
If you want to set up or invest in a data center or semiconductor venture directly, India allows automatic FDI approval up to 100% for IT and electronics sectors. You do not need government permission for most investments in these areas.
NRI Taxation: What You Must Know
While the tax holiday benefits foreign companies providing cloud services, NRI investors face different tax treatment:
Income Tax on Investments
- Capital gains: Short-term capital gains (holding period under 2 years for equities) are taxed at slab rates, which can go up to 42.744% including surcharge and cess (as per Budget 2026-27 changes).
- Long-term capital gains: Taxed at 20% with indexation benefit, or 10% without indexation (depending on the asset type and holding period).
- Dividends: Taxed at slab rates if you are a resident; as a non-resident, dividend income is taxed at 20% (or lower under DTAA).
DTAA Benefits
If you are an NRI from a country with which India has a Double Taxation Avoidance Agreement (DTAA), you can reduce withholding tax on dividends and interest:
- USA: Typically 15-20% withholding tax on dividends (reduced from 25% under DTAA).
- UAE: Typically 10-15% on dividends.
- UK, Singapore, Australia: Similar reductions apply.
FEMA Compliance
As an NRI, you must comply with the Foreign Exchange Management Act (FEMA):
- Repatriation of funds is allowed, but you must maintain documentation of the source of funds.
- Profits and dividends can be repatriated freely, but you need to file Form A2 (for repatriation of current income) or Form C (for repatriation of capital).
- Keep your PAN (Permanent Account Number) active and updated.
- Use NRE (Non-Resident External) accounts or NRO (Non-Resident Ordinary) accounts for managing your Indian investments, depending on the source of funds.
- Portfolio Investment Scheme (PIS) accounts offer a streamlined route for NRI equity and debt investments.
Investment Documentation
Maintain clear records of:
- Source of funds (foreign earnings, inheritance, gifts, etc.)
- Date of investment and purchase price
- Dividend and interest receipts
- Sale proceeds and dates
- Tax paid in India and in your country of residence
Key Takeaways for NRI Investors
1. Long-term policy certainty: The 20-year tax holiday until 2047 signals India's commitment to becoming a global AI infrastructure hub. This creates a stable environment for long-term capital allocation.
2. Massive investment pipeline: USD 160 billion in committed investments across data centers and semiconductors will drive growth in related sectors for decades.
3. Multiple entry points: Whether through direct FDI, portfolio investments in listed companies, data center REITs, or semiconductor design startups, NRIs have diverse ways to participate.
4. Tax optimization: Leverage DTAA benefits, FEMA-compliant repatriation, and long-term capital gains treatment to optimize your after-tax returns.
5. Emerging hubs: Data center capacity is expanding rapidly across Maharashtra, Tamil Nadu, Karnataka, and other states. Geographic diversification can reduce concentration risk.
6. Semiconductor opportunity: With 10 major projects approved and four starting production in 2026, the semiconductor sector offers both manufacturing and design opportunities.
7. Compliance is critical: File Form 10F for DTAA benefits, maintain FEMA documentation, and use appropriate account types (NRE/NRO/PIS) to ensure smooth repatriation and tax compliance.
For the latest updates on data center policy, semiconductor mission progress, and NRI investment rules, consult MeitY (Ministry of Electronics & IT), the RBI, and Sebi. Check indiabudget.gov.in for detailed Budget 2026-27 documents and tax provisions.