In a major relief for India’s information technology sector, Finance Minister Nirmala Sitharaman on Sunday announced a substantial expansion of the safe harbour framework for IT services in the Union Budget 2026-27, raising the eligibility threshold from ₹300 crore to ₹2,000 crore.
Presenting the Budget in Parliament, the Finance Minister said India has emerged as a global leader in software development, IT-enabled services, knowledge process outsourcing and contract research and development related to software. Acknowledging the growing convergence among these segments, the government has proposed to club them under a single category – Information Technology Services.
Under the revised framework, a common safe harbour margin of 15.5 per cent will apply across all IT services, simplifying transfer pricing compliance for a large number of companies.
To further improve 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, eliminating the need for scrutiny or approval by tax officers.
Once an IT services company opts for the safe harbour regime, it will be allowed to continue the same arrangement for a period of five years at its discretion, providing long-term tax certainty and reducing litigation.
For IT services firms opting for Advance Pricing Agreements (APAs) instead of safe harbour, the Budget introduces a fast-track unilateral APA process. The government will endeavour to conclude such APAs within two years, with a possible extension of six months on the taxpayer’s request.
The facility allowing the filing of modified returns for entities entering into APAs with their associated enterprises has also been extended.
The Finance Minister said these measures are aimed at simplifying tax administration, reducing disputes and strengthening India’s position as a preferred global hub for IT and technology-driven services.
