Budget 2026: Govt proposes safe harbour margin of 15.5% for IT sector; expands threshold from Rs 300 crore to Rs 2000 crore

FM Nirmala Sitharaman presented the Union Budget 2026 on Sunday

Finance Minister Nirmala Sitharaman on February 1 proposed increasing threshold of safe harbour margins for Indian information technology services sector from Rs 300 crores to Rs 2000 crores.

Calling India a global leader in IT services, Sitharaman has clubbed software development services, contract R&D services, IT enabled services, knowledge process outsourcing under a single category of Information Technology (IT) Services. The segment will now have a common safe harbour margin of 15.5 percent that will be applicable to all.

This is significant reduction from the previous range of 17-24 percent margin depending on the category of  services.

The approval of safe harbour margin will be done through automated rule driven process and won’t require a tax officer to examine, Sitharaman said during her Union Budget speech. The new safe harbour margin once applied for, can be continued for five years.

The government has also proposed fast tracking of unilateral Advance Pricing Agreement (APA) process for IT companies to conclude within two years that can be extended by another six months.

An APA is a tax agreement between a taxpayer and the tax authority of India, regarding the transfer pricing method for international transactions.