Safe harbour margin set at 15.5% for IT services, threshold hiked
The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has brought some welcome news for the IT services sector. In a bid to provide clarity and certainty to the industry, the Finance Minister has proposed a common safe harbour margin of 15.5% for IT services. 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 IT services firms and provide them with a sense of stability and predictability in their operations.
The concept of safe harbour is not new to the Indian tax landscape. It was introduced to provide clarity and certainty to taxpayers on the arm’s length price of their international transactions. The safe harbour rules allow taxpayers to declare a certain margin, which is deemed to be the arm’s length price, and avoid the rigors of transfer pricing audits. The safe harbour margin for IT services was earlier set at 20%, but it has now been reduced to 15.5%. This reduction is expected to bring the safe harbour margin more in line with the industry’s actual margins.
The enhancement of the threshold for availing safe harbour from ₹300 crore to ₹2,000 crore is also a significant move. This will allow more IT services firms to take advantage of the safe harbour provisions, which will provide them with a sense of stability and predictability in their operations. The increased threshold will also reduce the compliance burden on smaller IT services firms, which will no longer be required to undergo transfer pricing audits.
Another significant aspect of the safe harbour provisions is that once applied by an IT services firm, the same safe harbour can be continued for 5 years at a stretch at its choice. This will provide IT services firms with a sense of certainty and stability, as they will know that their transfer pricing arrangements will not be subject to scrutiny for a period of 5 years. This will also reduce the compliance burden on IT services firms, as they will not be required to file fresh transfer pricing returns every year.
The introduction of a common safe harbour margin of 15.5% for IT services is expected to benefit the industry in several ways. Firstly, it will provide clarity and certainty to IT services firms on the arm’s length price of their international transactions. This will reduce the risk of transfer pricing audits and disputes, which can be time-consuming and costly. Secondly, it will reduce the compliance burden on IT services firms, as they will no longer be required to maintain detailed transfer pricing documentation.
The move is also expected to boost the competitiveness of the Indian IT services industry. The Indian IT services industry is a significant contributor to the country’s GDP, and it is expected to continue to grow in the coming years. The introduction of a common safe harbour margin of 15.5% for IT services will provide the industry with a sense of stability and predictability, which will enable it to compete more effectively with its global peers.
In conclusion, the introduction of a common safe harbour margin of 15.5% for IT services, along with the enhancement of the threshold for availing safe harbour, is a welcome move for the IT services sector. It will provide clarity and certainty to IT services firms, reduce the compliance burden, and boost the competitiveness of the industry. The move is expected to have a positive impact on the Indian economy, as it will enable the IT services industry to continue to grow and contribute to the country’s GDP.
The Union Budget 2026 has also made several other significant announcements, which are expected to have a positive impact on the Indian economy. The Budget has proposed several measures to boost economic growth, including a reduction in the corporate tax rate and an increase in public expenditure. The Budget has also proposed several measures to promote digital payments and reduce the use of cash in the economy.
Overall, the Union Budget 2026 is a significant document that outlines the government’s vision for the Indian economy. The Budget has proposed several measures to boost economic growth, promote digital payments, and reduce the use of cash in the economy. The introduction of a common safe harbour margin of 15.5% for IT services is a significant move that is expected to benefit the IT services sector and boost the competitiveness of the Indian economy.
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
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