Union Budget Introduces Single Tax Framework for IT Services with 15.5% Safe Harbour Margin

The Union Budget’s proposal to overhaul the income tax framework for the information technology sector has been welcomed by industry experts as a move that could significantly reduce litigation and strengthen India’s position as a global technology hub. The plan seeks to consolidate multiple IT and IT-enabled service segments under a single tax framework with a uniform safe harbour margin of 15.5 per cent.

Experts say the proposal reflects a strategic shift toward a trust-based and predictable tax regime, aimed particularly at easing transfer pricing disputes faced by multinational corporations. By unifying software development services, IT-enabled services, knowledge process outsourcing, and contract research and development related to software into one category, the government hopes to simplify compliance and reduce long-standing friction between taxpayers and authorities.

Industry body Nasscom described the move as a decisive departure from process-heavy compliance mechanisms. In a statement, it said the expansion of the safe harbour eligibility threshold from ₹300 crore to ₹2,000 crore would materially widen access to tax certainty mechanisms for routine cross-border IT service models. Nasscom added that automating approvals through a rule-driven system would enhance clarity, predictability, and governance trust.

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Consulting firms echoed similar views. Nitin Bhatt, Technology Sector Leader at EY India, said the consolidation and extension of the scheme for five years would provide much-needed long-term certainty to the sector. He also welcomed the government’s intent to fast-track unilateral Advance Pricing Agreements within two years, calling it a positive step toward easing compliance obligations.

Naveen Aggarwal, Office Managing Partner for Delhi NCR at KPMG in India, termed the higher threshold a bold move that could benefit both tax authorities and businesses. He said grouping various IT-related services into a broad basket under the safe harbour framework would reduce litigation risks and improve operational ease for global technology and cloud service providers.

Legal experts also view the proposal as a signal of India’s intent to stay competitive amid global economic headwinds. Kumarmanglam Vijay of JSA Advocates & Solicitors said the 15.5 per cent margin under safe harbour provisions could give a major boost to entrepreneurs and global capability centres, reinforcing India’s attractiveness as a preferred destination for IT and digital services investment.

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