MC EXCLUSIVE Only about 100 IT firms outside safe harbour; CBDT chairman assures APAs within two years for rest

Companies covered under safe harbour may still choose to opt for an APA if they prefer,

• Most IT and digital firms now have a defined tax-certainty framework.
• Only about 40 IT companies remain outside safe harbour and APA coverage
• Foreign firms hosting in India not taxed on global income, data centre tax clarified.

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Only about 100 IT and IT-enabled services companies now remain outside the expanded 15.5 percent safe harbour framework, and nearly 60 of these are already covered through advance pricing agreements (APAs), Central Board of Direct Taxes (CBDT) chairman Ravi Agrawal said, adding that the remaining firms can opt for the APA route, which the tax administration has committed to completing within two years. The assurance effectively means that almost the entire IT and digital services sector now has access to a defined tax-certainty framework.

Agrawal was speaking to Moneycontrol in an exclusive interaction.

An advance pricing agreement is a pre-approved arrangement between a taxpayer and the tax authorities that determines the transfer pricing methodology for transactions between related entities over a fixed period.

By locking in how profits will be taxed in advance, APAs give companies certainty on their tax outgo, reduce the risk of transfer pricing disputes and help avoid prolonged litigation. For the tax administration, APAs also ensure predictability of revenue while cutting down on audits and legal challenges.

In the IT and IT-enabled services sector, APAs are particularly relevant because companies often provide a mix of services to overseas group entities, making profit attribution a frequent source of disputes.

Agrawal said the disclosure follows the Union Budget’s decision to raise the safe harbour turnover threshold to Rs 2,000 crore and introduce a uniform margin for IT, IT-enabled services and knowledge process outsourcing companies, sharply narrowing the universe of firms exposed to transfer pricing disputes.

“After expanding the safe harbour to a turnover threshold of Rs 2,000 crore, only about 100 companies remain outside the 15.5 percent framework,” Agrawal told Moneycontrol. “Out of these roughly 100 companies, around 60 already have advance pricing agreements in place.”

APAs as certainty route for remaining firms

For companies that are outside the safe harbour and do not currently have APAs, Agrawal said the APA route remains fully available and has now been reinforced with a time-bound commitment.

“For the remaining companies, the APA route continues to be fully available if they seek clarity and certainty,” he said. “We have also clearly stated that for IT, IT-enabled services and allied sectors, APAs will be completed within a period of two years.”

“One of the longstanding concerns around APAs was the time they take. By committing to a two-year timeline, that concern has been directly addressed,” Agrawal added.

He said that when the expanded safe harbour and APA framework are viewed together, there is effectively no company in the sector without a pathway to tax certainty. “When you take the expanded safe harbour together with the APA route, effectively 100 percent of companies in this space now have access to a certainty framework. Companies covered under safe harbour may still choose to opt for an APA if they prefer, and that option remains open,” he said.

“The intent is very clear — no company in the IT, IT-enabled services or KPO space should be left without an avenue for tax certainty, whether through safe harbour or through APAs,” Agrawal said.

Data centre taxation clarified

Alongside the transfer pricing measures, the Budget has also clarified the taxation framework for data centres, addressing concerns around permanent establishment exposure for foreign companies hosting applications in India.

“The data centre earns income by providing facilities – such as space, power and cooling – not by providing software or cloud services. It has no visibility into what applications are hosted, and it will continue to be taxed only on the services it provides,” Central Board of Direct Taxes chairman Ravi Agrawal said.

He said the clarification does not have any adverse tax impact on Indian data centre entities, which will continue to be taxed in India in the same manner as before. The move ensures that foreign companies will not face taxation of global income merely because applications are hosted in Indian data centres operated by associated entities.

The provision applies prospectively and is aimed at providing long-term certainty for investments in data centres, which involve high upfront capital costs and long gestation periods, Agrawal said.

FY27 direct tax collection targets not framed factoring in US deal

Agrawal said the revenue targets for FY27 were not set assuming any gains from the recently announced US trade deal and should not be seen as conservative. “The revenue targets for FY27 were framed independently, and the US deal was not factored into the projections,” he said, adding that it would not be appropriate to speculate on any upside to collections at this stage. The Union Budget 2026–27 has pegged the direct tax collection target at Rs 26.97 lakh crore for FY27.

“If nominal growth turns out to be higher, tax collections will naturally reflect that, but we will work towards meeting the targets that have been set,” Agrawal said.

In the current fiscal as of date, net tax collections stand at about Rs 18.52 lakh crore, with corporate income tax at around Rs 8.63 lakh crore and non-corporate tax at roughly Rs 9.4 lakh crore, while securities transaction tax collections are about Rs 44,871 crore, Agrawal said.