Union Budget 2026–27: Major Expansion of Safe Harbour Rules for IT Services

In the Union Budget 2026–27, Finance Minister Nirmala Sitharaman announced a significant overhaul and expansion of the Safe Harbour framework for IT services, aimed at simplifying transfer pricing compliance and enhancing ease of doing business.

Key Announcements

Expanded Eligibility Threshold

• Safe harbour turnover limit raised from ₹300 crore to ₹2,000 crore
• Brings a much larger number of IT and IT-enabled services firms under the simplified regime

Unified Category: “Information Technology Services”

• Software development
• IT-enabled services (ITES)
• Knowledge Process Outsourcing (KPO)
• Contract R&D related to software

All to be clubbed under a single category, recognising growing convergence in the digital services sector.

Common Safe Harbour Margin

• Uniform margin of 15.5% applicable across all IT services
• Reduces disputes over functional classification and margins

Automated Approval Process

• Safe harbour applications to be approved through a rule-driven, automated system
• No scrutiny or discretionary approval by tax officers
• Enhances transparency and reduces compliance friction

Long-term Tax Certainty

• Companies opting for safe harbour can continue the arrangement for up to five years
• Helps reduce litigation and planning uncertainty

Advance Pricing Agreements (APA): Fast-Track Option

• For firms preferring APAs over safe harbour:
  • Introduction of a fast-track unilateral APA
  • Target timeline: 2 years, extendable by 6 months at taxpayer’s request
• APAs can also include roll-back provisions, covering past years

What are Safe Harbour Rules (SHR)?

• Governed under Section 92CB of the Income Tax Act, 1961
• Allow adoption of pre-determined transfer pricing margins
• Transactions meeting SHR conditions are automatically accepted by tax authorities
• Prevents detailed audits and prolonged disputes