Budget 2026: Transfer Pricing Safe Harbour Overhaul Brings Relief to IT Services Sector

In the Union Budget 2026, Finance Minister Nirmala Sitharaman announced a significant revamp of India’s transfer pricing Safe Harbour regime. The move is widely seen as a positive development for the IT services sector, which has long faced uncertainty and litigation around transfer pricing rules.

The key change lies in the sharp increase in the eligibility threshold, which expands the scope of companies that can opt for simplified tax treatment.

Higher Threshold Broadens Coverage

Under the revised framework, the Safe Harbour eligibility limit has been raised from ₹300 crore to ₹2,000 crore. This marks a substantial expansion and allows a much larger group of Indian IT service providers to come under the Safe Harbour mechanism.

Earlier, only smaller companies could benefit from predetermined margins. With the higher threshold, mid-sized and even larger IT firms can now opt for this regime. This reduces the need for detailed transfer pricing studies and lowers the risk of prolonged tax audits and disputes.

Unified Margin for All IT Services

Budget 2026 also simplified the structure of the Safe Harbour rules by bringing all IT-related services under a single category. Software development, IT-enabled services, knowledge process outsourcing, and contract research and development are now covered together.

These services will be subject to a uniform margin of around 15.5%, replacing the earlier segmented margins that varied by service type. This change is expected to bring greater clarity and consistency to tax compliance for service exporters.

Automated and Rule-Based Approval Process

Another important reform is the shift to an automated, rule-based approval system for Safe Harbour compliance. Companies opting for the regime will no longer require examination or approval by tax officers.

This reduces administrative delays and increases predictability, especially for firms operating across global markets. The move aligns with the broader objective of improving ease of doing business and reducing discretionary oversight.

Why This Matters for the Sector

The overhaul directly addresses long-standing concerns around transfer pricing litigation and compliance costs. By offering certainty on margins and simplifying procedures, the government has provided IT companies with greater confidence in planning their operations and global contracts.

For India’s IT services exporters, the changes help align tax rules with commercial realities while lowering the risk of disputes.

Read more: Budget 2026: Did Finance Minister Announce Any Income Tax Relief?

Conclusion

The transfer pricing Safe Harbour reforms announced in Budget 2026 represent a meaningful step towards tax certainty and simplification. By expanding eligibility, unifying margins, and automating approvals, the government has eased compliance pressures on the IT services sector and reinforced India’s position as a competitive global services hub.

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