Tech sector welcomes tax proposals that bring clarity and stability

The proposals in the Union Budget of 2026-27 on safe harbour margin and advance price mechanism have been welcomed by the technology industry in India, and this is expected to boost the prospects of global capability centres (GCCs) operating in the country.

The Budget has now proposed clubbing software development services, IT-enabled services, knowledge process outsourcing services and contract R&D services relating to software development under a single category, Information Technology Services, with a common safe harbour margin of 15.5% applicable to all.

“The threshold for availing safe harbour for IT services is being enhanced substantially from 300 crore rupees to 2,000 crore rupees. Safe harbour for IT services shall be approved by an automated rule-driven process without any need for a tax officer to examine and accept the application. Once applied by an IT Services company, the same safe harbour can be continued for a period of 5 years at a stretch at its choice,” Union Finance Minister Nirmala Sitharaman said in her Budget speech.

This has been a long-standing demand from the Indian technology industry, which has led to frequent disputes with the Income Tax department.

In its reaction to the Union Budget, Nasscom said, “...represents a decisive shift away from process-heavy compliance towards clarity, predictability and trust-based governance. This can significantly reduce recurring transfer pricing friction for GCCs as well as for other Indian IT and ITES providers operating eligible related-party arrangements.”

Given the strong presence of foreign technology companies in India, the new regulations provide much-needed relief.

Nasscom Chairperson Sindhu Gangadharan said, “Greater predictability in tax and compliance frameworks is critical when technology platforms are designed to run for years. 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.”

The GCCs are now spearheading growth for the Indian technology industry, and global corporations are increasingly looking to set up centres in India.

Bhartiya Converge CEO Monica Pirgal said, “The government has removed the core friction points that global enterprises faced while expanding in India. Also, this signals a powerful shift that scale is no longer penalised but actively encouraged.”

The certainty in tax regulations is wholeheartedly welcomed by the technology industry, and for GCCs, this removes any doubts when they are scaling their business.

InCommon co-founder & CEO Piyush Kedia said, “For mid-market and PE-backed companies, this is meaningful because it lowers friction to start small, build confidently, and scale a GCC as a core part of the operating plan.”

Meyyappan Nagappan, Partner- Tax Practice, Trilegal, said, “The Union Budget 2026 reinforces India’s attractiveness as a hub for global capability centres and IT services. “

The Budget also proposed certain changes in the Advance Pricing Agreement (APA) for IT services companies, with the endeavour to conclude it within a period of 2 years, which has also been welcomed by the industry.

Nasscom said, “From an industry perspective, this is a practical step towards reducing friction, improving resource allocation within the tax system, and strengthening the credibility of India’s tax certainty framework at scale.”

Wipro CFO Aparna Iyer said, “The proposals such as combining IT services and R&D Services into a single bucket, increasing the threshold limit for safe harbor and providing a 2-year timeline for conclusion of unilateral APAs will provide tax certainty and reduce the cost of compliance for companies operating in the sector.”