Karnataka's data centre policy in 2026: what was announced on 15 July vs what is already in force
Summary. On 15 July 2026 the Karnataka government said it is preparing a data centre policy for AI workloads. It has not been published. Karnataka already has one: the Karnataka Data Centre Policy 2022-2027, listed on the Karnataka Digital Economy Mission site alongside a Karnataka GCC Policy 2024-2029. So the correct reading of the announcement is a successor policy, not a first, and it changes nothing you can act on this quarter. The change that did move the numbers in 2026 was federal. The Finance Act, 2026, gazetted on 30 March 2026, grants qualifying foreign companies a tax holiday running to the tax year ending 31 March 2047 on income from procuring Indian data centre services, and proposes a 15% safe harbour margin for Indian entities serving related foreign companies. Both hinge on a term, "specified data centre", whose enabling scheme has not been issued. Karnataka's own numbers from the announcement: 1,080-plus GCC units, close to 30% of India's total, with 34% of India's GCC talent in Bengaluru, ₹1.5 lakh crore committed to city infrastructure and a ₹25,000 crore corridor SPV already funded. This piece separates what is enacted from what is announced, and gives a site-selection checklist you can use before either policy lands.
What was actually said on 15 July 2026
The announcement came at the inaugural GCC Summit 2026 in Bengaluru, organised by Maxpo Exhibitions with the Department of Electronics, Information Technology and Biotechnology and the Karnataka Digital Economy Mission. L K Atheeq, chairman of the Bengaluru Business Corridor SPV and financial adviser to Chief Minister D K Shivakumar, said: "Karnataka is working on a comprehensive and sustainable Data Centre Policy, which will be rolled out very soon."
The rest of the announcement, as reported by PTI, covered:
An AI University and AI Hub on a campus of roughly 100 acres, public-sector-led, first announced by the Chief Minister at Google I/O Connect. The final location is still under discussion. A Vision Group for the university is to be constituted "shortly", with private-sector participation.
Shared GPU access. Atheeq's framing was that "many startups cannot afford expensive GPU infrastructure" and that the state should "create shared access to GPU computing at affordable rates", plus a public AI resource library.
Infrastructure spending that is already committed rather than proposed: nearly ₹1.5 lakh crore for Bengaluru infrastructure, and a multi-lane corridor from BIEC on Tumakuru Road to Electronic City via Yelahanka, Whitefield and Sarjapur, valued at about ₹25,000 crore, with funding secured, first-package tenders completed and work commenced.
Read the verbs carefully. The corridor has tenders let. The policy is "working on". The university has no site. That distinction is the whole article.
Karnataka already has a data centre policy
The Karnataka Digital Economy Mission publishes the state's policy library, and it lists the Karnataka Data Center Policy 2022-2027 with the description: "Government of Karnataka (GoK) has formulated Karnataka's Data Centre Policy 2022, with a focus on creating demand and value for data centres."
The same library lists a Karnataka Global Capability Center (GCC) Policy 2024-2029, a Karnataka IT Policy 2025-2030 with operational guidelines for incentives, a Karnataka Startup Policy 2025-2030, a Karnataka Cyber Security Policy 2024 and a Karnataka State Skill Development Policy 2025-2032.
This matters for planning in a specific way. If you are evaluating Karnataka for a data centre or an AI-heavy GCC footprint in the next two quarters, the instruments that apply to you are the 2022-2027 data centre policy and the 2024-2029 GCC policy, both already published, with operational guidelines you can read. The July announcement tells you a successor is coming before the 2022 policy expires in 2027. It does not tell you what will be in it, when it lands, or whether incentives improve or tighten.
Karnataka is also not unusual here. The law firm S&R Associates notes that "several states in India, including Rajasthan, Karnataka, Telangana, Tamil Nadu, Maharashtra, Odisha, Uttar Pradesh and Haryana, have formulated their own state-specific data centre policies and have granted certain exemptions and incentives to set up data centres in the respective states." Eight states with published policies is a competitive market, not a Karnataka-specific opening.
The change that actually mattered in 2026 was federal
While states iterate on incentive packages, the Union Budget 2026-27 rewrote the tax treatment of Indian data centre services for foreign buyers. This is the part of the 2026 story that has a gazette date attached to it.
The Finance Act, 2026 was notified in the official gazette on 30 March 2026. Two provisions matter.
The tax holiday. A foreign company serving customers outside India by procuring data centre services in India can be granted a tax holiday up to the tax year ending 31 March 2047. Four conditions attach: the foreign company must be notified by the Central Government; it must not own or operate any of the physical infrastructure or resources of the data centre; all its sales to users located in India must be routed through an Indian reseller company; and it must maintain and furnish prescribed information.
The safe harbour. A resident entity providing data centre services to a related foreign company that sells cloud services outside India is proposed to fall within a safe harbour regime at a 15% margin. In practice that lets a domestic data centre apply a fixed 15% margin on its costs for tax purposes, which is aimed at reducing transfer pricing disputes.
There is a catch, and it is the reason this is not yet a done deal either. Both benefits depend on the facility qualifying as a "specified data centre", defined in the Finance Act as a data centre that has been "set up under an approved scheme and is notified in this behalf by the Central Government in the Ministry of Electronics and Information Technology" and is "owned and operated by an Indian company."
Sumit Bansal and Aakanksha Joshi, partners at S&R Associates, put the practical position plainly in their April 2026 note: "While no separate scheme or guidelines have been issued in this regard, it is recommended that existing data centres assess their eligibility as 'specified data centres' once the relevant scheme / guidelines are issued by the Central Government."
So the headline federal incentive and the headline Karnataka incentive are in the same state: announced, not operable.
Enacted, announced, or undefined
| Item | Status as of 21 July 2026 | What you can do with it now |
|---|---|---|
| Karnataka Data Centre Policy 2022-2027 | Published by KDEM, in force | Apply for incentives under the current policy |
| Karnataka GCC Policy 2024-2029 | Published by KDEM, in force | Use for GCC site planning today |
| New Karnataka data centre policy | Announced 15 July 2026, no text | Nothing; watch for the notification |
| Karnataka AI University and AI Hub | Announced, site undecided | Nothing; no campus, no intake |
| Finance Act 2026 tax holiday to 2047 | Gazetted 30 March 2026 | Structure for it, but eligibility is pending |
| "Specified data centre" scheme | Not issued | Assess eligibility, cannot yet claim |
| MeitY Draft Data Centre Policy 2020 | Never notified | Nothing; it never came into effect |
That last row is the historical warning. S&R Associates records that the Ministry of Electronics and Information Technology issued a Draft Data Centre Policy in November 2020, took stakeholder feedback, and then never notified it: the policy "was not notified by the government and never came into effect." A draft national data centre policy sat unenacted for more than five years. Treat "will be rolled out very soon" accordingly.
The definition problem nobody has solved
There are now two competing official definitions of a data centre in India, and they do not agree on scale.
On 11 October 2022 the Department of Economic Affairs notified an updated Harmonized Master List of Infrastructure sub-sectors, adding data centres under the "Communication" category with the definition: "Data Centre housed in a dedicated/centralized building for storage and processing of digital data applications with a minimum capacity of 5 MW of IT load." That 5 MW floor governs infrastructure status and the financing eligibility that comes with it.
The Finance Act, 2026 uses a broader definition, "a dedicated secure space within a building or centralised location where computing and networking equipment is concentrated", and drops the 5 MW linkage entirely.
For a mid-size operator this is consequential. A 2 MW facility can potentially be a data centre for the tax holiday and not a data centre for infrastructure-status financing. Until the MeitY scheme is issued, nobody can tell you which threshold your build has to clear, and that is a real risk to a capital plan.
Site selection while the policy is pending
Waiting for an unpublished policy is not a plan. These are the factors that decide an India data centre or AI-capacity site regardless of which incentive package eventually lands, in the order they usually bind.
Power, first and by a distance. Atheeq made the point himself: "Stressing that data centres require reliable power and water." Incentives typically arrive as concessional industrial tariffs and electricity duty exemptions, which reduce the unit cost but do not create supply. Verify contracted capacity, dual-feed availability and open access provisions with the discom before you look at a subsidy table.
Water. AI-density racks change the cooling profile, and water availability is a permitting question in several Indian metros. This is the factor most often skipped at site shortlisting and most often fatal at approval.
Land and conversion. Stamp duty exemption and land conversion fee waivers are standard across the eight states with published policies, so they rarely differentiate. Actual land availability at the latency you need does.
Latency to your users and to your cloud on-ramps. If the workload is inference serving Indian users, metro proximity dominates. If it is training, it does not, which is exactly the case for going beyond Bengaluru, and Karnataka's stated intent is "expanding Global Capability Centre growth beyond Bengaluru into emerging technology clusters."
Ownership structure. This is new for 2026 and it is where the Finance Act reaches into your design. If a foreign parent wants the tax holiday, it cannot own or operate the physical infrastructure, and India sales must route through an Indian reseller. S&R Associates flags an unresolved question here: the Act "has not clarified whether the condition in relation to the foreign company not owning or operating any of the physical infrastructure or resources of the specified data centre also extends to indirect ownership or operation, i.e., through an Indian subsidiary." If it does, existing captive structures may need restructuring.
Foreign investment route. 100% foreign investment in data centres is permitted under the automatic route, except where the investing entity falls under the restricted-country list, in which case prior government approval is required.
Ranked against how much a pending policy could change each one:
| Site factor | Decided by policy or by physics? | Can a new Karnataka policy change it? |
|---|---|---|
| Contracted power and dual feed | Discom capacity and grid build | Only at the margin, through tariff concessions |
| Water availability and permits | Local hydrology and municipal rules | Rarely; permitting sits outside IT policy |
| Land cost and conversion | Market, plus stamp duty and conversion waivers | Yes, and the 2022-2027 policy already does |
| Latency to users and cloud on-ramps | Geography | No |
| Ownership and tax structure | Finance Act 2026 conditions | No, this is federal |
| Skills availability | Talent pool and schemes such as NIPUNA | Yes, over years rather than quarters |
Teams weighing this against simply not building the capacity themselves will find the trade-offs in our comparison of running a GCC versus using a product partner in India, and the operating-cost side in our breakdown of FinOps for AI workloads on AWS, Azure and GCP in India.
What this means for GCC planning specifically
Karnataka's GCC numbers from the 15 July announcement are strong and worth taking at face value: over 1,080 GCC units, close to 30% of India's total, and 34% of India's GCC talent based in Bengaluru. Atheeq's characterisation of what those centres now do is the part worth quoting: "Global Capability Centres are no longer back-office operations. They are designing products, leading innovation and increasingly functioning as the second headquarters of global enterprises."
The state's supporting machinery is already named and running. Avinash Menon Rajendran, managing director of the Karnataka Innovation and Technology Society, cited the state's GCC Policy, NIPUNA as the flagship skilling initiative for emerging technologies, and KATALYST as the dedicated GCC facilitation mechanism.
None of that requires the new data centre policy. If your GCC plan needs compute rather than a building, the practical route in 2026 is still commercial cloud or colocation capacity, with the state incentives applying to whoever owns the facility rather than to you as a tenant. The skills constraint usually binds before the infrastructure one does, which we covered in detail in our analysis of India's GCC AI skills gap.
Rajendran's framing of where the competition is heading is the sharper point for planning: "The next chapter of the GCC story will not be defined by scale alone. It will be defined by innovation, intellectual property, AI leadership and the ability to create global impact from India."
India-specific considerations
Two points sit underneath all of this for anyone processing personal data.
Data residency is a commercial decision in India, not a general legal mandate. The Digital Personal Data Protection Act 2023 governs how personal data is processed rather than requiring that all of it stay onshore, and sector regulators impose their own stricter rules. If you are choosing an Indian data centre primarily for compliance reasons, be precise about which obligation you are actually satisfying. Our DPDP engineering playbook for Indian startups sets out where the real constraints bite.
Sovereign compute is a separate track from state policy. Central programmes for shared GPU capacity operate independently of what Karnataka does, and Atheeq's proposal for state-subsidised shared GPU access would sit alongside them rather than replace them. We covered the national picture in our piece on India's sovereign AI push and the IndiaAI Mission.
The honest summary for a CTO reading the 15 July headlines: nothing in your Karnataka plan should change this quarter. The 2022-2027 policy is what you apply under. The Finance Act structuring question is worth taking to your tax counsel now, because the ownership conditions affect how you incorporate, and that is expensive to unwind later. The new state policy is a watch item with no date.
FAQ
Does Karnataka already have a data centre policy?
Yes. The Karnataka Digital Economy Mission publishes the Karnataka Data Center Policy 2022-2027 in its policy library, described as formulated by the Government of Karnataka with a focus on creating demand and value for data centres. The policy announced on 15 July 2026 would be a successor to it rather than the state's first.
When will the new Karnataka data centre policy be published?
No date has been given. L K Atheeq said only that the policy "will be rolled out very soon" at the GCC Summit 2026 on 15 July 2026. For comparison, the Ministry of Electronics and Information Technology issued a draft national data centre policy in November 2020 that was never notified and never came into effect.
What did the Union Budget 2026-27 change for data centres?
The Finance Act 2026, gazetted on 30 March 2026, grants qualifying foreign companies a tax holiday up to the tax year ending 31 March 2047 on income from procuring Indian data centre services, and proposes a 15% safe harbour margin for resident entities serving related foreign companies. Both depend on qualifying conditions.
Can I claim the data centre tax holiday today?
Not yet with certainty. The benefit requires the facility to be a "specified data centre", meaning set up under an approved scheme notified by the Central Government through MeitY and owned and operated by an Indian company. S&R Associates notes that no separate scheme or guidelines have been issued, so eligibility cannot be confirmed.
How many GCCs does Karnataka have?
Karnataka has over 1,080 GCC units, which is close to 30% of India's total, and 34% of India's GCC talent is based in Bengaluru. Those figures were given by L K Atheeq at the GCC Summit 2026 on 15 July 2026, alongside a commitment to expanding GCC growth beyond Bengaluru.
Is there a minimum size for a facility to count as a data centre in India?
Two definitions currently coexist. The Harmonized Master List notified on 11 October 2022 sets a minimum of 5 MW of IT load for infrastructure status. The Finance Act 2026 uses a broader definition without that threshold, so a facility may qualify under one and not the other until MeitY issues its scheme.
Which other Indian states have data centre policies?
S&R Associates lists Rajasthan, Karnataka, Telangana, Tamil Nadu, Maharashtra, Odisha, Uttar Pradesh and Haryana as states that have formulated their own data centre policies and granted exemptions and incentives. Eight states with published policies means incentive packages rarely differentiate a site on their own.
Can foreign companies own Indian data centres?
Foreign investment of 100% is permitted under the automatic route, except where the investing entity falls under the restricted-country list, which requires prior government approval. Separately, to claim the Finance Act 2026 tax holiday, the foreign company must not own or operate the physical infrastructure of the data centre.
How eCorpIT can help
eCorpIT plans and builds AI and cloud infrastructure for companies operating in India, and the hard part of a decision like this is rarely the incentive table. Our senior engineering teams size compute honestly against the workload, model the running cost across colocation and the major clouds, and design data architectures that hold up under DPDP scrutiny. If you are deciding where and whether to place AI capacity in India this year, talk to us before the policy lands rather than after.
References
- Karnataka to roll out data centre policy to power AI growth, next-gen computing, PTI via The Federal, 15 July 2026
- Policies, Karnataka Digital Economy Mission
- Indian Budget 2026-27: Tax Incentives for Data Centres, S&R Associates, 7 April 2026
- Data Centres in India: Opportunity and Incentives, S&R Associates
- India Data Centre Policy by State, Ahlawat & Associates
- State-wise Data Center Policies, Subsidies, Incentives and Approvals in India, Profile IT Solutions
- Analysing the Data Centre Policies of India, nasscom
- India's Data Centre Opportunity, Invest India
- Karnataka Data Centre Policy plans Rs 10,000 crore investments, Communications Today
- Karnataka Data Centre Policy plans to attract Rs 100 billion in investment, tele.net.in
- Karnataka Data Center Policy 2022-27 operational guidelines, Open City data portal
- Karnataka Data Centre Policy to Boost AI Infrastructure and GCC Growth, Convergence Now
Last updated: 21 July 2026.
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