The Indian government, on Budget day, announced a sweeping overhaul of tax compliance rules for the IT and software sector, grouping all major digital services under a single category and sharply expanding safe harbour limits to reduce disputes and speed up approvals.
Finance minister Nirmala Sitharaman said that all software development, IT-enabled services, knowledge process outsourcing, and contract research and development will now be classified together as Information Technology Services.
A uniform safe harbour margin of 15.5% will apply across the category, replacing multiple classifications and margins that often led to litigation and interpretation gaps.
In a significant relief for mid-sized firms, the safe harbour eligibility threshold has been raised from ₹300 crore to ₹2,000 crore. This expansion brings a far larger pool of IT exporters into the simplified regime, which was also one of the industry expectations.
Approvals will be automated without officer scrutiny, and companies opting for the framework will be allowed to continue under the same safe harbour for five years in one stretch, providing long-term tax visibility.
The government also said the unilateral Advance Pricing Agreement (APA) process for IT services will be fast-tracked. Cases will be targeted for closure within two years, with a six-month extension available on request.
Participating entities and their associates will be permitted to file modified returns, a step meant to align tax positions quickly and avoid prolonged adjustments.
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