Safe Harbour Margin Set at 15.5% for IT Services, Threshold Hiked
The Indian government has announced a significant change in the safe harbour margin for IT services in the latest budget. Finance Minister Nirmala Sitharaman proposed a common safe harbour margin of 15.5% for IT services, which is expected to bring relief to the IT industry. Additionally, the threshold for availing safe harbour for IT services has been enhanced from ₹300 crore to ₹2,000 crore. This move is expected to benefit large IT companies and simplify the tax compliance process.
The safe harbour provision is a mechanism that allows taxpayers to opt for a predetermined margin, which is deemed to be the arm’s length price for their international transactions. This provision is intended to reduce disputes and litigation related to transfer pricing. The safe harbour margin is the minimum margin that a taxpayer is required to maintain in order to avoid scrutiny from tax authorities.
The new safe harbour margin of 15.5% for IT services is a significant reduction from the earlier margins, which ranged from 17% to 22%. This reduction is expected to benefit IT companies, as it will reduce their tax liability and increase their profitability. The government has also clarified that once an IT services firm applies for the safe harbour, it can continue to use the same safe harbour for 5 years at a stretch, at its choice. This will provide stability and predictability to the IT industry, and enable companies to plan their tax strategy with greater certainty.
The increase in the threshold for availing safe harbour from ₹300 crore to ₹2,000 crore is also a significant move. This will allow more IT companies to take advantage of the safe harbour provision, and reduce the compliance burden on smaller companies. The government has also indicated that it will review the safe harbour margins periodically, to ensure that they remain relevant and effective.
The IT industry has welcomed the new safe harbour margin and the increased threshold. Industry associations have stated that the new margin will help to reduce disputes and litigation related to transfer pricing, and will provide a more stable and predictable tax environment. The industry has also appreciated the government’s decision to allow IT companies to continue using the same safe harbour for 5 years, as it will reduce the compliance burden and enable companies to focus on their business operations.
However, some experts have noted that the new safe harbour margin may not be beneficial for all IT companies. Companies that have a higher margin than the safe harbour margin may not benefit from this provision, as they will still be required to maintain their higher margin to avoid scrutiny from tax authorities. Additionally, the new margin may not be relevant for companies that have a significant portion of their revenue from non-IT services, as the safe harbour margin is specific to IT services.
In conclusion, the new safe harbour margin of 15.5% for IT services and the increased threshold of ₹2,000 crore are significant moves that are expected to benefit the IT industry. The government’s decision to allow IT companies to continue using the same safe harbour for 5 years will provide stability and predictability to the industry, and enable companies to plan their tax strategy with greater certainty. However, the impact of the new margin will depend on the specific circumstances of each company, and some companies may not benefit from this provision.
As the IT industry continues to evolve and grow, it is essential that the government continues to review and update the tax laws and regulations to ensure that they remain relevant and effective. The new safe harbour margin and the increased threshold are positive steps in this direction, and are expected to contribute to the growth and development of the IT industry in India.
For more information on the Union Budget 2026, please visit: https://www.moneycontrol.com/news/business/union-budget-2026-live-news-updates-finance-minister-nirmala-sitharaman-budget-speech-key-announcements-liveblog-13802050.html/amp
About the Author
