The government has significantly revamped the safe harbour scheme to improve ease of doing business from April 1, 2026. According to reports from Business Standard, the major overhaul was announced in the Union Budget 2026-27 as the government sought to attract more foreign investment into the country. The regime now allows eligible taxpayers to avoid prolonged transfer pricing disputes by accepting a prescribed profit percentage and complying with specified conditions. The government has merged software development, IT-enabled services, knowledge process outsourcing, and software research and development into a single 'IT services' category and raised the eligibility threshold to ₹2,000 crore in annual turnover from the earlier ₹300 crore.
Leading consulting firms have urged the government to clarify several aspects of the scheme, as reported by Business Standard. A senior finance ministry official acknowledged industry concerns regarding the 'insignificant risk' condition under the safe harbour rules, stating that the Central Board of Direct Taxes is aware of stakeholder concerns but does not see the need to tweak norms at this stage. The official noted that substantially R&D-involved companies would not be eligible as the rules are designed for low-risk routine service providers, and entities outside the eligibility conditions may opt for advance pricing agreement (APA) routes.
Experts have flagged several ambiguities in the rules under the Income-Tax Act, 2025, that could create uncertainty for taxpayers. According to Business Standard reports, key concerns include the exact meaning of terms such as 'economically significant functions' (core business activities that add major value), 'economically significant assets' (valuable resources or technology), and 'direct supervision' by a foreign parent company. Tarun Arora from Deloitte India highlighted questions about whether Indian employees' participation in patent development could result in partial economic ownership of intangible assets, potentially affecting eligibility for the safe harbour regime.
The new framework introduces a uniform 15.5 per cent profit margin and operates through an automated, rule-based approval process. As reported by Business Standard, an Indian IT services company can opt for safe harbour if key functions, ownership of intellectual property, funding, and major business risks remain with the overseas parent company. The regime is designed to work for companies where the overseas parent company maintains substantial control over core business activities and intellectual property ownership.
Hasnain Shroff from Dhruva Advisors welcomed the expanded turnover threshold to ₹2,000 crore, noting it would bring a larger pool of global capability centres and IT service providers under the regime. According to Business Standard reports, PwC India partner Kunj Vaidya said the scheme's revamp improved certainty and widened applicability, though some interpretational issues remain. Sandeep Bhalla emphasized the need for clear distinction between routine execution work and high-value product conceptualisation, stating that the regime should not exclude GCCs merely because of incidental design work involvement.
