Union Budget sets unified 15.5% safe harbour margin for all sub-sets of IT services

Finance Minister Nirmala Sitharaman on Sunday proposed to club various inter-connected sub-segments of IT including software development services, IT enabled services, knowledge process outsourcing services and others, under a single category with common safe harbour margin of just 15.5 per cent, a move aimed at boosting Indias attractiveness to tech giants across Europe and the US.

Finance Minister Nirmala Sitharaman on Sunday proposed to club various inter-connected sub-segments of IT including software development services, IT enabled services, knowledge process outsourcing services and others, under a single category with common safe harbour margin of just 15.5 per cent, a move aimed at boosting India's attractiveness to tech giants across Europe and the US. The proposal, alongside other sweeteners, unveiled in the Union Budget - upping the threshold for IT services safe harbour to Rs 2,000 crore from Rs 300 crore, and dishing out tax holiday for cloud providers leveraging India's data centre services - seeks to woo global investments while ensuring tax certainty and alignment with international norms, positioning the country as a reliable destination for multinational operations. 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, Sitharaman said noting these business segments are quite inter-connected with each other. ''All these services are proposed to be clubbed under a single category of Information Technology Serviceswith a common safe harbour margin of 15.5 percent applicable to all. The threshold for availing safe harbour for IT services is being enhanced substantially from Rs 300 crore to Rs 2,000 crore,'' she said. Safe harbour for IT services shall be approved by an automated rule-driven process without any need for tax officer to examine and accept the application. ''Once applied by an IT Services company, the same safe harbour can be continued for a period of five years at a stretch at its choice,'' she said. Rajesh Varrier, President of Global Operations and Chairman and Managing Director, Cognizant India believes the Budget sends a clear signal that India is doubling down on its role as a global technology and services powerhouse. ''The recognition of IT services as a unified category, along with enhanced safe-harbour thresholds, brings much-needed certainty and predictability to the industry - allowing companies to shift their focus from compliance to innovation, client outcomes, and long-term value creation,'' Varrier said. The Budget's emphasis on strengthening India's research, development and innovation ecosystem-particularly across AI, digital platforms and emerging technologies - creates a strong foundation for IT services companies to deepen applied R&D, co-create industry solutions with clients, and translate cutting-edge research into scalable, real-world outcomes, he added. The strong push on artificial intelligence as a force multiplier for productivity, governance and growth, supported by investments in data centres, emerging technologies and services exports, reinforces India's ambition to be the world's most trusted digital partner, as per Varrier. ''Together, these measures create a powerful platform for global capability centres, technology services firms and enterprises to co-innovate from India, build responsible AI at scale, and accelerate the journey towards a Viksit Bharat,'' he pointed out. According to Munjal Almoula, Managing Partner, Tax & Regulatory Advisory, BDO India, currently the IT/ITES companies are facing significant litigation on inter-company transactions. The present safe harbour rates are also found to be on the higher side, dissuading companies from going down this route. ''Whilst APA (Advance Pricing Agreement) is an option, the time period for completion of the APA process has led to taxpayers in this sector facing significant uncertainty on their transfer pricing matters. The fast-tracking of APAs and a reasonable safe harbour proposed for IT companies (transacting with their related parties) will provide greater certainty and encourage FDI in this sector,'' Almoula said. The Union Budget announcement to position India attractively for global business and investments, comes in the challenging backdrop of US tariffs and geopolitical shocks that has roiled global trade. As such, India's USD 280-billion IT industry is dealing with visa-related headwinds and macro uncertainties. Heightened scrutiny of the US H-1B visa programme, including a USD 1,00,000 fee for new visas, social media screening and unpredictable processing delays, has complicated cross-border delivery for Indian firms, even as companies accelerate efforts to reduce reliance on US visas.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)