Experts See Budget’s IT Tax Reforms As Inflection Point For Certainty, Compliance Ease

Experts in India’s software industry believe that the Union Budget’s proposed overhaul of safe harbour and advance pricing mechanisms could mark a structural shift in how India’s IT services sector manages transfer pricing risk, compliance burden and long-term tax certainty.

Industry body Nasscom said the measures announced by Finance Minister Nirmala Sitharaman are closely aligned with long-standing priorities consistently flagged by the technology sector through engagement with the government.

“Nasscom welcomes the Budget’s alignment with long-standing industry priorities that we have consistently articulated through sustained engagement and consultation,” the body said in a post-budget statement.

Experts point out that the decision to club software development services, IT-enabled services, knowledge process outsourcing and contract R&D into a single category of Information Technology Services, coupled with a uniform safe harbour margin of 15.5 percent, brings long-awaited clarity to business models that are operationally intertwined but were previously subject to different tax treatment.

Equally significant, according to Nasscom, is the increase in the safe harbour eligibility threshold from ₹ 300 crore to ₹ 2,000 crore, which it said “materially expands access to certainty mechanisms for routine cross-border IT service models.”

Tax experts say the move to an automated, rule-driven safe harbour approval process, without examination by tax officers, could meaningfully reduce compliance friction for IT exporters and global capability centres. 

Nasscom described this as “a decisive shift away from process-heavy compliance towards clarity, predictability and trust-based governance,” adding that the option to apply the same safe harbour for a continuous five-year period further strengthens certainty.

From a transfer pricing perspective, specialists also see the strengthening of the Advance Pricing Agreement (APA) framework as a critical reform. The Budget proposes to fast-track unilateral APAs for IT services, with an endeavour to conclude them within two years, extendable by six months, while also extending the modified return facility to associated entities impacted by an APA.

“These changes introduce a clearer tiering of certainty mechanisms, allowing routine cases to move onto rule-based tracks while enabling APAs to focus on genuinely complex matters,” Nasscom said, noting that this could reduce residual disputes and improve resource allocation within the tax administration.

Echoing this, Gokul Chaudhri, President - Tax, Deloitte India, said tax certainty and ease of compliance clearly dominate the IT-related reforms embedded in the Budget.

“We now have a stable and pragmatic safe harbour for service exports that qualify as information technology. This sector brings in significant foreign capital, export earnings, and material job creation,” Chaudhri said, describing the measures as a timely intervention that strengthens confidence in India’s tax framework for the IT services sector.