IT boost: Budget offers tax certainty with safe harbour reforms

2 min readUpdated: Feb 2, 2026 08:12 AM IST

Identifying the tech services sector as a key driver in India’s developmental journey, Union Finance Minister Nirmala Sitharaman announced a slew of measures for IT services companies, as the sector faces heightened pressure from the proliferation of artificial intelligence (AI).

The Budget proposes to club software development services, IT-enabled services (ITES), knowledge process outsourcing services and contract research and development services relating to software development under a single category of IT services with a common safe harbour margin of 15.5%.

Further, the threshold for availing safe harbour for IT services will be enhanced from Rs 300 crore to Rs 2,000 crore. Safe harbour for IT services shall be approved by an automated rule-driven process, and once applied by an IT services firm, the same safe harbour can be continued for a period of five years at a stretch.

Safe harbour taxation refers to provisions in tax laws that allow taxpayers to follow simplified, pre-defined rules, ensuring the tax authority will accept their declared transfer prices or tax liability without further audit or dispute.

IT services industry’s key lobby group Nasscom welcomed the changes, and said they would “materially expand access to certainty mechanisms for routine cross-border IT service models”.

“Importantly, the proposal to move safe harbour approvals to an automated, rule-driven process without examination by tax officers, along with the option to apply the same safe harbour for a continuous five-year period, represents a decisive shift away from process-heavy compliance towards clarity, predictability and trust-based governance. This can significantly reduce recurring transfer pricing friction for Global Capability Centres (GCC) as well as for other

Indian IT and IT-enabled services providers operating eligible related-party arrangements,” Nasscom
added.

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A unilateral Advanced Pricing Agreement process for IT services is proposed to be fast-tracked with an endeavour to conclude it within two years, which can be extended by six months on the taxpayer’s request.

The proposals come amid the recent Economic Surveys cautionary advice to the IT services sector.

Soumyarendra Barik is a Special Correspondent with The Indian Express, specializing in the complex and evolving intersection of technology, policy, and society. With over five years of newsroom experience, he is a key voice in documenting how digital transformations impact the daily lives of Indian citizens.
Expertise & Focus Areas Barik’s reporting delves into the regulatory and human aspects of the tech world. His core areas of focus include:

The Gig Economy: He extensively covers the rights and working conditions of gig workers in India.

Tech Policy & Regulation: Analysis of policy interventions that impact Big Tech companies and the broader digital ecosystem.

Digital Rights: Reporting on data privacy, internet freedom, and India’s prevalent digital divide.

Authoritativeness & On-Ground Reporting: Barik is known for his immersive and data-driven approach to journalism. A notable example of his commitment to authentic storytelling involves him tailing a food delivery worker for over 12 hours. This investigative piece quantified the meager earnings and physical toll involved in the profession, providing a verified, ground-level perspective often missing in tech reporting.
Personal Interests Outside of the newsroom, Soumyarendra is a self-confessed nerd about horology (watches), follows Formula 1 racing closely, and is an avid football fan.
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