Safe harbour for IT services received a significant boost in the Union Budget 2026-27, with the threshold for availing the scheme enhanced sharply from ₹300 crore to ₹2,000 crore, as announced by Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman, while presenting the Budget in Parliament today.
Presenting the Union Budget 2026-27, the Finance Minister highlighted that India has emerged as a global leader in software development services, IT-enabled services, knowledge process outsourcing (KPO), and contract research and development (R&D) related to software development.
Noting that these segments are deeply interconnected, the government has proposed to consolidate them under a single category – Information Technology Services.
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Safe Harbour for IT Services Unified Under Single Category
As part of this reform, safe harbour for IT services will now apply uniformly across all these segments with a common safe harbour margin of 15.5 percent.
The substantial enhancement of the eligibility threshold – from ₹300 crore to ₹2,000 crore – aims to widen the coverage of IT services companies that can opt for safe harbour provisions under the transfer pricing framework.
Safe Harbour for IT Services to Be Granted Through Automated Process
The Finance Minister further announced that safe harbour for IT services will be approved through an automated, rule-driven process, eliminating the need for tax officers to examine or accept applications.
Once an IT services company opts for the scheme, the same safe harbour can be continued for a consecutive period of five years, at the taxpayer’s discretion.
Fast-Track APA for IT Services Announced
- For IT services companies seeking certainty through Advance Pricing Agreements (APAs), the Budget also introduced a fast-track Unilateral APA process specifically for IT services.
- The government will endeavour to conclude such APAs within two years, with a possible extension of six months on request by the taxpayer.
- Additionally, the facility of filing modified returns for entities entering into APAs with their associated enterprises has been extended.
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Commenting on the Budget announcement, Umesh Shah, Director – New Age Technologies at Orient Technologies Limited, said:
“The Union Budget sends a strong and reassuring signal for data centre and cloud investments in India. The proposed tax holiday till 2047 for foreign companies setting up data centres in the country provides long-term visibility and confidence for global players evaluating India as a strategic base for their cloud operations.
The introduction of a defined safe harbour of 15% on cost for data services co-provided from India by related entities further brings clarity to cross-border operating models and reduces uncertainty around transfer pricing. Together, these measures simplify compliance, lower execution risk, and make it easier for companies to scale data centre and cloud-led services from India.”
