In an increasingly volatile global economic environment, Budget 2026 reflects India’s conscious shift towards certainty, predictability, and long-term institutional strength in taxation. Rather than focusing on headline rate changes, the Budget makes targeted reforms in transfer pricing and international tax to reduce litigation, align tax rules with commercial reality, and enhance India’s credibility as a stable destination for cross-border investment.
1. Expanded and Simplified Safe Harbour Regime
Safe Harbour Rules play a critical role in reducing TP litigation by prescribing minimum margins that, if complied with, are accepted by the tax authorities without detailed scrutiny.
1.1 Unified Safe Harbour for Information Technology Services
The Finance Bill proposes to consolidate multiple inter-linked IT segments into a single category of “Information Technology Services”, covering:
-
- Software development services,
- IT-enabled services,
- Knowledge Process Outsourcing (KPO),
- Contract R&D services relating to software development.
Key Amendments-
| Category | Proposed Change |
|---|---|
| IT Services (Software dev, ITES, KPO, Contract R&D – software) | Unified safe harbour margin of 15.50% |
| Threshold for IT Services | Enhanced from ₹300 crore to ₹2,000 crore |
| Approval mechanism | Automated, rule-based approval (no officer discretion) |
| Validity period | Can be applied for 5 consecutive years |
| Data Centre services | Safe harbour of 15% mark-up on cost |
| Electronic goods warehousing | Safe harbour of 2% of invoice value |
2. Advance Pricing Agreements (APA): Wider Coverage and Faster Resolution
Advance Pricing Agreements remain one of the most effective tools for long-term TP certainty.Key Amendments-
| Aspect | Proposed Amendment |
|---|---|
| Modified return filing | Extended to Associated Enterprises (AEs) |
| Time limit for filing modified return | Within 3 months from end of month of APA |
| Applicability | APAs entered into from 1 April 2026 onwards |
| Unilateral APA (IT services) | Target completion in 2 years (extendable by 6 months) |
3. International Tax: Strategic Exemptions to Boost Investment
3.1 Exemption for Foreign Companies Procuring Data Centre Services
Foreign companies will be exempt from tax on income arising from procuring data centre services from a Specified Data Centre in India.
Key Conditions
Exemption available up to tax year ending 31 March 2047
Data center must be set up under an approved scheme, notified by CG, and must be owned and operated by an Indian company.
- Foreign company must:
- Not own or operate physical infrastructure,
- Sell to Indian users only through an Indian reseller,
- Maintain prescribed documentation.
3.2 Exemption for Capital Goods Supplied to Electronics Manufacturers
Foreign companies supplying: Capital goods, Equipment and Tooling to Indian contract manufacturers operating from custom bonded warehouses will enjoy tax exemption on such income.
Key Conditions–
-
- Ownership remains with the foreign company,
- Contract manufacturer operates under control and direction,
- Applicable from AY 2027-28 to AY 2031-32.
4. Foreign Assets of Small Taxpayers Disclosure Scheme, 2026
Recognising genuine compliance challenges faced by small taxpayers, a one-time disclosure window is proposed.
4.1. Eligibility & Scope
| Category | Covered Persons |
|---|---|
| Residents | Residents in relevant previous year |
| Non-residents / NOR | If resident when asset was acquired or income earned |
| Target group | Students, young professionals, tech employees, relocated NRIs |
4.2. Tax / Fee Structure
| Type of Asset / Income | Amount Payable |
|---|---|
| Undisclosed foreign asset / income (≤ ₹1 crore) | 30% tax + 100% penalty |
| Asset acquired as non-resident, not disclosed (≤ ₹5 crore) | ₹1 lakh fee |
4.3. Immunity & Safeguards
| Aspect | Benefit Provided |
|---|---|
| Penalty | Complete immunity |
| Prosecution | Complete immunity |
| Reassessment | No reopening of completed assessments |
| Exclusions | Proceeds of crime, PMLA cases, completed Black Money Act cases |
5. Strategic Impact of TP and International Tax Reforms
-
- Certainty over Disputes: Expanded safe harbours and faster APAs materially reduce cross-border tax risk.
- Targeted Growth Focus: Tax relief aligned with data centres, electronics, and GCC-led investment.
- Systemic Simplification: Standardization and automation signal a shift from litigation to predictability.
