A major policy shift in Union Budget 2026–27 is set to change how India’s IT and GCC sector is taxed, offering long-awaited clarity and relief.
The government has proposed to combine software development services, IT-enabled services, knowledge process outsourcing, and contract R&D related to software development into a single category called Information Technology Services. A uniform safe harbour margin of 15.5% will apply across all these segments. At the same time, the safe harbour threshold for IT services has been raised sharply from ₹300 crore to ₹2,000 crore.
This move comes as global capability centres in India have expanded rapidly over the past 2 years, and the domestic software industry is projected to reach $300 billion in revenue in FY26. The reforms are expected to bring relief to GCCs operating under transfer pricing rules, especially those using a cost-plus mark-up model.
Indian arms of multinational companies have raised concerns over rising transfer pricing disputes. Rahul Jain, Partner, Khaitan & Co, believes the changes will ease this pressure. “This is likely to encourage the companies to opt for the safe-harbour rules and reduce the obligation to explain their independent margins and address additional questioning by the authorities” he said.
Earlier, the safe harbour framework applied only to firms with turnover up to ₹300 crore, excluding many mid-sized and large companies. GCC mark-ups were also higher at 17%–24%, compared with 17%–18% for IT and IT-enabled services. Along with standardising treatment, the government has announced faster processing of unilateral Advance Pricing Agreements for IT services. These will now be targeted for completion within 2 years, extendable by 6 months at the taxpayer’s request.
“Safe harbour for IT services shall be approved by an automated rule-driven process without any need for tax officer to examine and accept the application. Once applied by an IT Services company, the same safe harbour can be continued for 5 years at a stretch at its choice,” said Finance Minister Nirmala Sitaraman during her Budget speech.
Industry leaders have welcomed the changes. Sindhu Gangadharan, SAP Labs India; Chairperson, Nasscom; President, Indo German Chamber of Commerce, said predictable tax and compliance frameworks are critical for long-term growth. “For large, globally distributed engineering and operations teams, clarity reduces friction in decision-making and allows accountability for core platforms and products to sit firmly in one place. This matters for GCCs that are moving into full-stack ownership, where India increasingly builds, runs, and scales enterprise platforms for global customers,” she said.
Rajesh Varrier, President – Global Operations & Chairman and Managing Director, Cognizant India, said the reforms will strengthen applied R&D and innovation. “The recognition of IT services as a unified category, along with enhanced safe-harbour thresholds, brings much-needed certainty and predictability to the industry—allowing companies to shift their focus from compliance to innovation, client outcomes, and long-term value creation,” he said.
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