The Union Budget’s proposal to consolidate various IT service segments under a unified tax framework with an expanded safe harbour limit marks a strategic pivot towards a trust-based tax regime, aimed at significantly reducing transfer pricing disputes and compliance friction for multinational corporations, say experts.
Industry experts believe the move to automate approvals and offer long-term tax certainty will fundamentally alter the operational landscape for Global Capability Centres (GCCs), encouraging tech giants to deepen their reliance on India as a stable, competitive hub for cloud infrastructure and digital services.
Terming the proposal a “decisive shift” away from process-heavy compliance, industry body Nasscom said the changes materially expand access to certainty mechanisms for routine cross-border IT service models.
“The consolidation of software development services, IT-enabled services, KPO and contract R&D relating to software development into a single category… with a uniform safe harbour margin of 15.5% together with the enhancement of the Safe Harbour eligibility threshold from Rs 300 crore to Rs 2,000 crore, materially expands access to certainty mechanisms,” Nasscom said in a statement.
The industry body noted that moving approvals to an automated, rule-driven process represents a shift towards “clarity, predictability and trust-based governance,” which will significantly reduce recurring transfer pricing friction for GCCs as well as for other Indian IT and ITES providers operating eligible related-party arrangements.
Nitin Bhatt, Technology Sector Leader at EY India, said the initiatives will play a key role in shaping the sector’s growth.
“By consolidating multiple IT and IT-enabled service categories into a single definition… and extending this scheme for 5 years provides much-needed long-term certainty and eases compliance obligations.
“Additionally, the endeavour to fast-track and conclude the Unilateral APA within a period of 2 years is also a welcome move,” Bhatt said.
Naveen Aggarwal, Office Managing Partner – Delhi NCR at KPMG in India, termed the government’s decision to increase the threshold a “bold step.”
“Considering IT enabled, software development, KPO and contract R&D services in a broad basket while applying this safe harbour will be a win-win for both the Revenue and taxpayers,” Aggarwal said.
He added that the enhanced safe-harbour framework is expected to reduce tax litigation risk, providing multinational tech and cloud players with greater operational ease.
Legal experts also view the move as a signal of India’s intent to remain competitive amidst global headwinds.
Kumarmanglam Vijay, Partner and Head of Practice – Direct Tax at JSA Advocates & Solicitors, said the 15.5% margin for IT and ITES exports under safe harbour provisions is likely to give a “major boost” to entrepreneurs wanting to set up IT services and GCCs. “With this, the Government has made it clear that it would like India to retain its competitiveness in the world,” Vijay said.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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