New Delhi: In a significant boost to India’s information technology sector, the Union Budget 2026–27 has proposed a substantial expansion of the Safe Harbour regime for IT services, enhancing certainty, reducing litigation, and easing compliance for companies operating in the sector.
Presenting the Budget in Parliament, Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, said India has emerged as a global leader in software development services, IT-enabled services, knowledge process outsourcing (KPO), and contract research and development related to software. Recognising the interconnected nature of these segments, the Budget proposes to club all such activities under a single category—Information Technology Services.
Under the revised framework, a uniform safe harbour margin of 15.5 per cent will apply across all IT services. Most notably, the threshold for availing the Safe Harbour has been sharply increased from ₹300 crore to ₹2,000 crore, significantly widening its coverage and benefiting a large number of mid-sized and growing IT firms.
Automated, Rule-Driven Approval Process
To further simplify tax administration and enhance ease of doing business, the Finance Minister announced that Safe Harbour applications for IT services will now be approved through an automated, rule-driven process, removing the requirement for scrutiny or approval by tax officers. Once opted for, companies can continue under the Safe Harbour regime for a continuous period of five years, at their discretion.
The move is aimed at providing long-term certainty on transfer pricing matters, reducing disputes, and allowing companies to focus on growth and innovation rather than prolonged tax compliance.
Faster Advance Pricing Agreements
For IT services companies preferring Advance Pricing Agreements (APAs), the Budget introduced a fast-track unilateral APA process. The government will endeavour to conclude such APAs within two years, with a provision to extend the timeline by an additional six months at the taxpayer’s request.
The Budget also extended the facility of modified returns to entities entering into APAs with their associated enterprises, further easing compliance during the transition period.
Strengthening India’s IT Ecosystem
Taken together, the proposed reforms signal the government’s intent to strengthen India’s IT ecosystem by offering predictability, transparency, and reduced regulatory friction. By expanding the Safe Harbour threshold and digitising approvals, the Union Budget 2026–27 aims to reinforce India’s position as a preferred global destination for technology and knowledge-driven services.
