Budget 2026: Rationalisation of Safe Harbour Provisions for IT/ITeS Sector, Data Centres and Component Warehousing for Electronic Manufacturing
The Government has proposed significant rationalisation to the Safe Harbour Rules to reduce litigation and provide certainty, particularly for the IT/ITeS sector and new manufacturing initiatives.
Below is the summary comparison of the earlier (existing) framework versus the proposed Safe Harbour rules. Kindly note that these changes are not part of the Finance Bill 2026 and it is expected that the Safe Harbour Rules would be amended to incorporate the proposed changes.
1. Information Technology & ITeS Sector
Budget 2026 proposes consolidating various segments of the IT sector into a single category with a unified margin and a significantly higher turnover threshold.
| Feature | Earlier / Existing Framework | Proposed Safe Harbour Rules (Finance Bill 2026) |
| Category Classification | Distinct categories existed for Software development services, ITeS, Knowledge Process Outsourcing (KPO), and Contract R&D relating to software development. | All these services are clubbed under a single category of “Information Technology Services”. |
| Turnover Threshold | The threshold for availing safe harbour was Rs. 300 Crore. | The threshold is substantially enhanced to Rs. 2,000 Crore. |
| Safe Harbour Margin | Margins varied across the different sub-segments (Software, ITeS, KPO, etc.) ranging from 17% to 24%. | A common safe harbour margin of 15.5% is applicable to the consolidated “Information Technology Services” category. |
| Approval Process | Involved examination by a tax officer to accept the application. | Automated rule-driven process with no need for examination by a tax officer. |
| Duration | Application had to be renewed/evaluated regularly. | Once applied, the safe harbour can continue for a period of 5 years at a stretch at the company’s choice. |
2. New Safe Harbour for Manufacturing & Infrastructure
Budget 2026 introduces new safe harbour provisions to attract investment in Data Centres and Electronic Manufacturing, which were not explicitly covered under specific safe harbour provisions earlier.
| Sector / Activity | Proposed Safe Harbour Provision |
| Data Centres | A safe harbour of 15% on cost is proposed for a resident entity providing data centre services to a related foreign company (where the foreign company provides cloud services globally). |
| Electronic Manufacturing (Warehousing) | To support just-in-time logistics, a safe harbour is proposed for non-residents for component warehousing in a bonded warehouse at a profit margin of 2% of the invoice value. |
The new Act explicitly states that the determination of income referred to in Section 9(2) (deemed income) or arm’s length price shall be subject to safe harbour rules, and empowers the Board to make such rules. The definition of “safe harbour” means circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee (Section 167 of Income Tax Act 2025).
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