A major policy change in Union Budget 2026 aims to simplify taxation and compliance for India’s technology sector by bringing all IT-related services under a single classification.
Union Finance Minister Nirmala Sitharaman announced that companies offering software development services, IT-enabled services, Knowledge Process Outsourcing (KPO), and contract research and development (R&D) will now be grouped under one category called Information Technology Services. The move reflects India’s position as a global hub for digital and technology services.
“India is recognised as a global leader in software development services, IT-enabled services, knowledge process outsourcing, and contract R&D services.
All these segments to be clubbed under a single category called Information Technology Services,” Sitharaman said.
Under the new framework, all such companies will be subject to a common safe harbour margin of 15.5%. The threshold for availing safe harbour benefits has also been raised sharply from ₹300 crore to ₹2,000 crore.
“A common safe harbour margin of 15.5% will apply to all IT services. The threshold for availing safe harbour increased from ₹300 crore to ₹2,000 crore. Safe harbour approvals for IT services will be processed via an automated, rule-driven system, removing the need for examination by tax officers,” she said.
The Finance Minister also announced faster processing for companies seeking Advance Pricing Agreements (APA). A new fast-track unilateral APA process will be introduced for IT services, with a target to complete cases within 2 years. This period can be extended by 6 months at the request of the taxpayer.
In addition, the facility of filing modified returns for entities entering into an APA has been extended to their associated entities. These steps are aimed at reducing disputes, improving predictability, and encouraging global investment in India’s IT services sector.
The changes are expected to benefit companies operating across multiple service segments by giving them a single classification, uniform margins, and quicker approvals. This is likely to lower compliance burden and improve confidence among domestic and international technology firms.
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