PwC has called on the Indian government to clarify whether goods and services tax (GST) input tax credits can be claimed on data centre construction.

The professional services provider has sought explicit guidance on classifying hyperscale data centre infrastructure as either “plant and machinery” or civil structures.

This classification is key to determining input tax credit (ITC) eligibility on construction-related costs.

PwC, as reported by Business Standard, said: “In the specific case of co-location data centre service providers, an additional argument can be advanced that construction is not ‘on own account’ where output is the taxable leasing/renting of space, racks, and related infrastructure. Together with the plant-and-machinery carve-out, this supports the position that ITC should be available for such outward leasing supplies.”

The group also proposed that the government explore a more generous depreciation framework for data centres.

It argued that data centres have distinct operational needs, feature integrated systems, and are purpose-built, making them impractical to repurpose for alternative uses.

These facilities are built to maximise the efficiency and security of digital infrastructure, and a supportive depreciation policy could help stimulate further investment in the sector.

Recognising the cross-border aspects of cloud services, PwC further advised that the government clarify how data centre-related transactions should be classified.

There should be guidance on whether these transactions constitute royalty payments to the parent company or should be treated as fees for technical services.

PwC said, “In a few instances, concerns have been raised that foreign entities may have a PE in India, and therefore, there should be profit attribution. This may expose the non-resident entity to uncertainty around profits taxable in India.”

Additionally, PwC has suggested that the government revise the significant economic presence (SEP) rules.

The existing thresholds, about Rs20m (roughly $222,522) in revenue or 300,000 users, for taxing non-resident businesses may be too low when applied to data centre operators.

“These areas, particularly the risk of creating a PE and exposure to SEP, are especially salient for overseas players establishing data centres in India, and should be evaluated against India’s broader digital ambition to position itself as a trusted global hub for data infrastructure, cloud services, and cross-border digital trade,” PwC concluded.