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.