In an era where geopolitical influence is increasingly measured by digital sovereignty, the physical pathways of the internet have become critical strategic assets. The United States and India have recently joined forces to bolster the security, resilience, and diversification of global undersea cable networks. This alliance, highlighted by the US Embassy in India, underscores New Delhi’s rapid ascent as a primary global digital hub. In September, the two nations convened an “Undersea Cables Workshop,” bringing together public and private sector experts to address the protection of these vital communication lifelines.
While the geopolitical and technological narratives of this partnership are compelling, the operational execution of such a massive infrastructure push hinges on a complex web of tax, customs, and regulatory frameworks. Building, maintaining, and securing subsea cables demands unprecedented capital expenditure (capex), bringing intricate GST structures, import duties, and cross-border service compliance to the forefront of the discussion.
The Geopolitical and Strategic Foundation: TRUST and Pax Silica
Undersea cables act as the silent nervous system of the global digital economy, carrying over 95% of international data traffic. They power everything from daily financial transactions and cloud computing platforms to the ongoing artificial intelligence revolution. Recognizing this, the US-India partnership is being driven under the bilateral TRUST (Transforming the Relationship Utilising Strategic Technologies) Initiative.
Launched during Prime Minister Narendra Modi’s visit to Washington, the TRUST framework aims to deepen cooperation in critical sectors such as AI, semiconductors, quantum computing, and space. According to US Ambassador Sergio Gor, India’s inclusion in the “Pax Silica” initiative—a US-led trusted technology and supply-chain network—reflects a high level of mutual confidence between the two nations. However, transitioning these strategic visions into physical undersea cables and landing stations requires navigating India’s rigorous fiscal and tax landscapes.
The Tax Playbook: GST and Capex on Subsea Infrastructure
The development of undersea cable systems involves astronomical capital investments. Laying fiber-optic cables across ocean floors and constructing Cable Landing Stations (CLS) on coastal shores represents a significant portion of India’s infrastructure development. This massive capital outlay directly intersects with India’s Goods and Services Tax (GST) regime, particularly regarding the eligibility of Input Tax Credit (ITC).
Under Section 17(5) of the Central Goods and Services Tax (CGST) Act, ITC is restricted on works contract services and goods used for the construction of an immovable property on one’s own account. Historically, telecom infrastructure, such as towers and pipelines laid outside factory premises, has faced intense litigation regarding whether they qualify as “plant and machinery” eligible for ITC. Telecom consortia investing in subsea cables must carefully structure their contracts to ensure that landing equipment, power feed equipment, and submarine line terminal equipment (SLTE) are classified correctly to maximize ITC flow and avoid stranded tax costs. This level of tax structuring mirrors the challenges analyzed in the new-age capex surge in India, where data centers and digital infrastructure require robust tax planning to remain financially viable.
Customs Duties and Import Compliance on Subsea Hardware
Because India relies heavily on imported specialized hardware for subsea networks—including high-tensile armored fiber-optic cables, optical repeaters, and branching units—customs compliance is a critical cost driver. These goods attract Basic Customs Duty (BCD) and Integrated GST (IGST) at the port of import.
Determining the correct Harmonized System of Nomenclature (HSN) classification is vital. Misclassification can lead to severe penalties, delayed clearances, and disrupted project timelines. Furthermore, because these cables are laid in international waters (beyond India’s territorial waters), complex jurisdictional tax questions arise. The transition of goods from domestic territory to the Exclusive Economic Zone (EEZ) and continental shelf requires a deep understanding of customs frontiers, as the Indian customs zone extends to these areas for specific resource and infrastructure activities.
Place of Supply and Cross-Border Data Transmission under GST
Once the physical cables are operational, they sell bandwidth and data transmission services to global telecom operators, over-the-top (OTT) media players, and cloud service providers. Under GST, the taxation of these telecommunication services depends heavily on the “Place of Supply” rules.
For international leased circuits and data transmission services, determining whether the service qualifies as an “export of services” (which is zero-rated under GST) or a domestic supply (subject to 18% GST) is highly complex. If the recipient of the bandwidth is located outside India, but the cable landing station and delivery point are within India, tax authorities often scrutinize the transaction to determine the actual place of performance. Ensuring clean, compliant contracts is essential to prevent double taxation or unexpected GST liabilities that could erode the profitability of international consortia.
Regulatory Compliance and Trusted Supply Chains
The TRUST initiative emphasizes the use of verified, secure technology vendors to safeguard sensitive data from interception or cyber threats. This security mandate introduces a new layer of compliance overhead. To maintain integrity, businesses must implement strict vendor due diligence processes, aligning with India’s evolving digital security regulations. This focus on secure, verified identities and fraud prevention is becoming standard across all digital sectors in India, as seen in other regulatory areas like the biometric Aadhaar mandates for GST registrations designed to curb systemic tax evasion.
Furthermore, as the US and India work toward a roadmap for accelerating AI infrastructure, next-generation data centers will need to be built to process the massive volumes of data flowing through these cables. Operators will face strict compliance audits concerning data localization, environmental standards for power consumption, and cross-border data transfer regulations under India’s Digital Personal Data Protection (DPDP) Act.
Conclusion: A Resilient Digital Future
The US-India partnership to secure global undersea cable networks is a landmark step toward building a resilient, trusted digital ecosystem. However, the physical implementation of this strategic alliance cannot succeed in a vacuum. It requires a highly coordinated fiscal environment where customs clearances are streamlined, GST rules on cross-border data transmission are clear, and input tax credits on infrastructure investments are fully realizable. For global technology and telecom players, navigating these tax and compliance waters will be just as crucial as laying the physical cables across the ocean floor.
