Major Tax Changes in IT Sector: Safe harbour threshold increased from ₹300 crore to ₹2,000 crore [Read Finance Bill 2016]

The Union Budget for the Financial Year 2026-27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026).

The Union budget 2026-27 proposed major changes in the Information Technology (IT) sector to strengthen the Indian IT sector globally. India is a global leader in software development services, IT enabled services, knowledge process outsourcing services and contract R&D services relating to software development. These segments are interlinked with each other.

The government proposed to club all services under a single category of “Information Technology Services”. A common safe harbour margin of 15.5% is applicable to all services.

The safe harbour threshold was proposed to increase from 300 crore to 2000 crore. These safe harbors for the IT sector are approved by an automated rule-driven process without examination of the tax officer. This safe harbour will be continued for a period of 5 years.

The Finance Minister proposes Fast Track Unilateral Advanced Pricing Agreement (APA) for IT services and concludes APA process within a period of two years and extendable by six months at the request of the Taxpayer. It was also proposed to extend the facility of filing modified returns available to the entity entering into an APA and to its associated enterprises.

The section 169 of Income Tax Act, 2025 has been amended to provide the effect to APA. Under the existing framework, section 168(1), only the taxpayer who entered into the APA could file a modified return to give effect to the agreement. Associated enterprises, whose income and tax liability were correspondingly altered due to the APA, had no statutory mechanism to revise their returns or claim refunds

It was also proposed to provide that where income is modified pursuant to an APA entered into on or after 1 April 2026, the person entering into the APA, as well as any associated enterprise affected by the agreement, may furnish a return or modified return in accordance with the terms of the APA.

These modified returns must be filed within three months from the end of the month in which the APA is entered into. The amendment will apply in relation to tax year 2026–27 and subsequent tax years.

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