**Executive Summary:**
This document is the answer provided by the Minister of State for Electronics and Information Technology to the Lok Sabha Unstarred Question No. 2830 on August 6, 2025, regarding the impact of rigid laws on investment in data cities and AI innovation. It addresses concerns about the Income Tax Act discouraging foreign Cloud Service Providers (CSPs) and compares India's investment environment with countries like Singapore. The response also clarifies the government's position on a proposal from Andhra Pradesh to amend Section 9011 of the Income Tax Act.
**Key Points / Main Content:**
* **Investment Environment:**
* India has a streamlined regulatory framework designed to attract investments in data centers and AI.
* India's Data Center Capacity has grown from 375 MW in 2020 to approximately 1030 MW currently.
* The IndiaAI mission, launched in March 2024, aims to establish a robust AI ecosystem.
* As of now, 34,381 GPUs have been onboarded from 14 empanelled AI service providers.
* 23 Cloud Service Providers (CSPs), including 6 major foreign CSPs, are empanelled with MeitY, and have established businesses in India.
* **Taxation of Foreign Cloud Service Providers:**
* A non-resident's business activity creates a taxable presence in India if it meets the Business Connection threshold under the Income-tax Act, 1961, and the Permanent Establishment threshold under the Double Taxation Avoidance Agreement (DTAA), if applicable.
* Ring-fencing specific business activities like cloud services is not advisable.
* **Comparison with Other Countries:**
* India's policies are drafted after examining best practices worldwide.
* India offers advantages such as lower construction costs, a well-established digital services ecosystem, and more affordable real estate.
* **Proposal from Andhra Pradesh:**
* The Ministry of Electronics and Information Technology (MeitY) has not received any proposal from the State Government of Andhra Pradesh to amend Section 9011 of the Income Tax Act, 1961.
**Impact Analysis**
* **Foreign Cloud Service Providers (CSPs):**
* *Impact:* Subject to Indian tax laws if they meet the criteria for a taxable presence, based on business connection and permanent establishment thresholds.
* *Action Required:* Ensure compliance with Indian tax regulations and DTAA provisions, if applicable.
* **Investors in Data Centers and AI:**
* *Impact:* Benefit from India's streamlined regulatory framework and growing data center capacity.
* *Action Required:* Stay informed about the evolving regulatory landscape and investment opportunities in the Indian data center and AI sectors.
* **Government of Andhra Pradesh:**
* *Impact:* Clarification that MeitY has not received their proposal to amend Section 9011 of the Income Tax Act.
* *Action Required:* If desired, resubmit the proposal to MeitY for consideration.
Key Entities Referenced
Ministry of Electronics and Information Technology (MeitY): A ministry of the Government of India responsible for electronics and information technology policy.
Income Tax Act, 1961: An act of the Indian Parliament that governs income tax.
Data Cities: Refers to urban areas designed and equipped to support data processing and storage infrastructure.
AI Innovation: Advancement and development in the field of Artificial Intelligence.
Singapore: A country that offers a transparent and favorable regulatory regime for investments.
State Government of Andhra Pradesh: The state government that proposed amending Section 9011 of the Income Tax Act, 1961.
IndiaAI Mission March 2024: An Indian initiative to establish a robust and inclusive AI ecosystem.
Double Taxation Avoidance Agreement (DTAA): An agreement between two countries to avoid double taxation of income.
GOVERNMENT OF INDIA
MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY
LOK SABHA
UNSTARRED QUESTION NO. 2830
TO BE ANSWERED ON: 06.08.2025
RIGID LAWS AS HURDLE FOR INVESTMENT FOR DATA CITIES AND AI
INNOVATION
2830. SHRI BALASHOWRY VALLABHANENI:
Will the Minister of ELECTRONICS AND INFORMATION TECHNOLOGY be pleased to state:
(a) whether it is true that rigid laws of the country standing as hurdle for investment for data cities
and AI innovation;
(b) if so, whether is it also true that the present Income Tax Act discourages foreign Cloud Service
Providers from investing in India by classifying them as Permanent Establishments which
increases their tax burden;
(c) the manner in which the Government looks at countries like Singapore which offer more
transparent and favourable regime;
(d) whether the State Government of Andhra Pradesh has proposed the Union Government for
amending Section 90(1)(1) of the Income Tax Act to reduce litigation risk for foreign investors
and helps in enhancing India’s global competitiveness; and
(e) if so, the details of steps taken by the Government in this so far?
ANSWER
MINISTER OF STATE FOR ELECTRONICS AND INFORMATION TECHNOLOGY
(SHRI JITIN PRASADA)
(a): The Government of India has a well-defined & streamlined regulatory framework thereby
providing a transparent & investor-friendly environment to attract investments in data centre and
AI.
Progress of the sectors can be seen as under:
● India’s Data Centre Capacity has grown from about 375 Megawatt (MW) in 2020 to about
1030 Megawatt (MW) currently (As per industry reports)
● IndiaAI Mission (March 2024) to establish a robust and inclusive AI ecosystem
○ As of now, 34,381 GPUs have been onboarded from 14 empanelled AI service
providers
○ This includes both Indian and foreign Cloud Service Providers (CSPs) & Managed
Service Providers (MSPs) of Hyperscalers
● 23 Cloud Service Providers (CSPs) including 6 major foreign Cloud Service Providers
(CSPs) are empanelled with MeitY● Both Indian and Foreign Cloud Service Providers (CSPs) have setup their business
establishment in the country
(b): A non-resident’s business activity creates a taxable presence in India if it meets:
● “Business connection” threshold under the Income-tax Act, 1961, and
● “Permanent Establishment” threshold under Double Taxation Avoidance Agreement
(DTAA), if applicable
This principle applies uniformly across sectors, and ring-fencing specific business activities (like
cloud services) is not advisable, as it contradicts India’s consistent stand on source-based taxation
taken at international fora.
(c): The policies of government are drafted after examining the best practises across the world.
The Economic Survey 2024-2025 released by Department of Economic Affairs (DEA), Government
of India, India notes that India offers key advantages, including:
● Lower construction costs,
● Well-established digital services ecosystem, and
● More affordable real estate
All of these contribute to India’s competitiveness as a digital and data hub.
(d) and (e): Ministry of Electronics and Information Technology (MeitY) has not received the
proposal from the State Government of Andhra Pradesh for amending Section 90(1)(1) of the
Income Tax Act, 1961.
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