Summary: The Gujarat Government has unveiled the Viksit Gujarat Data Center Policy 2026-2029 (“Policy”), to promote hyperscale and colocation data centers in the state, marking a significant shift from its earlier incentive regime for data center projects under the IT/ITES Policy 2022-2027. While the previous framework supported relatively smaller projects through a limited capital and power subsidy model, the new Policy is designed for hyperscale/ large data center developments with a minimum installed IT load capacity of 150 MW. It introduces a substantially enhanced incentive package comprising long-term power-related benefits, interest subsidies, GST reimbursements, support for allied infrastructure such as battery energy storage systems and desalination plants, and various regulatory relaxations. With this Policy, Gujarat aims to attract hyperscale/ large, capital-intensive data center projects and compete with other leading data center hubs in the country.

BACKGROUND

India’s data center sector has witnessed significant investment momentum in recent years, with multiple Indian states, including Andhra Pradesh, Karnataka and Tamil Nadu, introducing dedicated data center policies to attract domestic and global investors.

Against this backdrop, the Gujarat Government unveiled the Viksit Gujarat Data Center Policy 2026-2029 (“Policy”) on July 9, 2026, which will be administered by the Department of Science & Technology (“DST”) as the nodal department.

The new Policy has evolved from Gujarat’s earlier IT/ITES Policy 2022-2027, under which the incentive framework was relatively modest in scale, requiring greenfield Tier 3 or above facilities with a minimum built-up area of 4,000 sq. ft. and at least 150 racks to qualify for one-time capital expenditure support of up to 25% of eligible expenditure (capped at INR 150 crore), alongside a power tariff subsidy of INR 1 per unit for five years. In contrast, the eligibility threshold under the new Policy is anchored to a minimum installed IT load capacity of 150 MW, while the incentive package has been transformed from a single one-time subsidy into a multi-layered, long-duration financial support framework spanning capital subsidies, interest subsidies, 20-year power-related benefits, comprehensive GST reimbursement, desalination infrastructure and other fiscal and non-fiscal incentives.

OPERATIVE PERIOD OF THE POLICY

The Policy will come into force from the date of its notification and will remain operative for three years. The High-Powered Committee (“HPC”) established under the Policy, or the State Government, may, in the interest of the State, extend the operative period from time to time on such terms and conditions as may be decided. Further, all incentives under the Policy will be available only until the aggregate installed capacity target of 7.5 Gigawatt (GW) across the State is achieved.

Only eligible entities that have applied for assistance on or before three years from the date of notification of the Policy and received in-principle approval on or before the prescribed cut-off date, will be eligible for incentives under the Policy.

ELIGIBLE ENTITIES

Eligible data center entities may be companies, special purpose vehicles or any other legally-recognised organisations that own, lease, develop, establish, hold or control the infrastructure of a data center, either directly or through their affiliates, with an approved installed IT load capacity of 150 MW or above (“Data Center Entities”). It is to be noted that entities availing incentives under any other policy of Gujarat Government are not permitted to claim incentives under this Policy. However, Data Center Entities can avail incentives under applicable central policies for data center projects.

INCENTIVES UNDER THE POLICY

The Policy offers a comprehensive package of both fiscal and non-fiscal incentives to Data Center Entities. The incentives under the Policy are outlined below:

Fiscal Incentives

The Policy offers a robust package of financial incentives that collectively have the potential to offset a portion of both capital outlay and ongoing operational costs for eligible Data Center Entities:

• Capital Subsidy: Data Center Entities establishing projects solely in the Dholera Special Investment Region (“Dholera SIR”) are eligible for a capital subsidy of 2.5% of the Eligible Fixed Capital Investment(“EFCI”). For this purpose, EFCI means expenditure incurred on core data center infrastructure, including buildings and civil construction, electrical systems, mechanical and cooling systems, power-backup infrastructure, captive Battery Energy Storage Systems (“BESS”) (subject to a cap of 10% of the total capital subsidy claimed), networking and cabling systems, security and fire-safety installations, data center-specific equipment and other essential fixed systems required for operation of the facility. The cost of land, land development and semiconductor chips are specifically excluded from EFCI computation. The EFCI for incentive computation is capped at the lower of: (a) 80% of the total Fixed Capital Investment (FCI); or (b) INR 60,000 crore for a 1 GW project (scaled proportionately for projects of higher or lower approved capacity). It is pertinent to note that: (a) the Policy does not clarify the distinction between “land development costs” (which are excluded) and eligible “buildings and civil construction” expenditure, creating uncertainty regarding the treatment of site preparation and other enabling works; and (b) while semiconductor chips are excluded from EFCI, the Policy does not specify whether servers, GPUs, racks and other IT hardware incorporating semiconductor chips would qualify as eligible “data center-specific equipment”, leaving the treatment of such expenditure open to interpretation. The DST is expected to issue detailed implementation guidelines to operationalise the Policy. Greater clarity on these aspects may be provided through such guidelines.

• Interest Subsidy: An interest subsidy of up to 4% per annum for 10 years (capped at INR 25 crore per year) on term loans sanctioned by a financial institution or bank. Any loan provided by a Non-Banking Financial Company (“NBFC”) for EFCI acquisition will not qualify for interest subsidy.
• Power-Tariff Subsidy: A subsidy of INR 1 per unit for 20 years from the date of commencement of commercial operations.

• Electricity Duty Reimbursement: 100% reimbursement of electricity duty actually paid for 20 years from the date of commencement of commercial operations. However, to avail incentives under the Policy, it is mandatory to source 51% of electricity for core data center operations from green and renewable energy, which will necessitate careful structuring of the entity’s power procurement strategy, whether through bilateral PPAs, captive generation or open access, well in advance of commencement of operations.

• Sub-leasing/ Sub-letting: Sub-leasing or sub-letting of land and/ or built-up area within the Data Center Entity is permitted under the Policy. The first instance of sub-letting will be allowed without levy of any additional charges, fees, premium, or transfer charges, subject to compliance with applicable laws, rules, and regulations. It is not clear whether colocation arrangements would be treated as a single “first instance” of sub-letting, or whether each individual sub-tenant agreement would have to be evaluated separately for this exemption.

• Stamp Duty and Registration Fee Exemption: 100% exemption on stamp duty and registration fees on lease or purchase of land.

• GST Reimbursement: A three-pronged GST benefit, covering 100% reimbursement of State GST (SGST) paid on (a) purchase of plant and machinery for eight years from grant of in-principle approval; (b) building and allied infrastructure consumption for eight years from grant of in-principle approval; and (c) 100% net SGST on eligible operational services consumed within the state for 20 years from commencement of commercial operations. Reimbursement under items (a) and (b) is limited to the extent of permanent input tax credit reversal.
• Desalination Plant Support: Entities that choose to establish a captive desalination plant will be eligible for a capital subsidy of 20% of eligible capital expenditure (excluding land) or INR 2 crore per MLD, whichever is lower, for plants with capital support of up to 20 MLD capacity for a 1 GW project (scaled proportionately for higher or lower project capacities).

Total financial incentives under the Policy will be limited to 75% of EFCI made within the Eligible Investment Period (“EIP”), being eight years from the date of grant of in-principle approval under the Policy (extendable by up to two years), and will be disbursed over twenty years, with annual disbursements capped at 5% of the total eligible incentive amount.

Non-Fiscal Incentives

Building and Construction Relaxations

Eligible Data Center Entities will benefit from a range of relaxations to standard construction norms, including additional Floor Space Index (i.e., the ratio of permissible built-up area to plot area), reduced parking requirements, and greater flexibility on ground coverage, floor heights, and rooftop installations. These are specifically tailored to accommodate the large footprint and technical requirements of hyperscale data center facilities.

Power Supply Benefits

• Facilitation of applications to the GERC for grant of a distribution license for data center activity;
• Dual power supply through two independent feeders ensuring greater operational reliability; and
• Permission to procure power through open access.

The permission to procure power through open access, read with the guarantee of dual power supply through independent feeders, merits particular attention. India’s installed power capacity exceeds 500 GW, yet regional imbalances, grid congestion and a lack of interconnectivity continue to hinder reliable and cost-effective electricity supply to major data center hubs. Gujarat’s position as a large renewable energy-generating state means that data center operators located within the state are particularly well placed to leverage open access to procure green power at competitive rates.

Other Operational Support

• Round-the-clock uninterrupted water supply up to the data center; and
• Government facilitation for all statutory approvals, clearances, and registrations.

Essential Services Status

The operation, management, maintenance and support for data centers in Gujarat will be treated as “Essential Service” under the Gujarat Essential Services Maintenance Act, 1972, which provides operational continuity protections for data center operators.

CONCLUSION

The Gujarat Data Center Policy 2026-2029 represents a significant step in Gujarat’s ambition to position itself as a leading destination for hyperscale/ large data center investments in India. However, certain aspects of the Policy, including the treatment of land development costs vis-à-vis eligible civil construction expenditure, the applicability of the Policy to smaller colocation arrangements and the nature of the captive desalination plant requirement, remain open to interpretation and will require further clarity. The DST is expected to issue detailed implementation guidelines that may clarify these aspects. Prospective investors would be well advised to monitor the issuance of these guidelines closely and to engage with the government at the earliest to avail benefits under the Policy.

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