1. Safe Harbour – Predictable Margins, Near Zero Litigations

In Budget 2026–27, the Government has announced changes to support India’s IT and technology services industry. The aim is to reduce tax disputes, make it easier for companies to do business, and strengthen India’s position as a global hub for IT and digital services. These changes mainly focus on Safe Harbour Rules, which are meant to simplify how profits are checked for companies that do business with their overseas group companies. The Government has set standard profit levels so that companies have more clarity on what is acceptable. 

In simple terms, companies that opt for the Safe Harbour regime will get relief, as the tax department will generally accept their declared margins without detailed scrutiny. This helps such companies avoid prolonged audits, reduce litigation, and gain certainty over their tax positions. 

However, the question remains for companies that do not opt for Safe Harbour—for them, transfer pricing scrutiny by the TPO will continue in the normal course, with margins tested through comparability analysis and subject to potential adjustments  

• One IT Services Category, One Margin 

Budget 2026–27 simplifies transfer pricing for the IT sector by merging software development, ITES, KPO, and contract R&D into a single category called “Information Technology Services.” This removes long-standing classification disputes between closely linked services. 

For this unified category, a standard margin of 15.5% has been prescribed. Where an IT services company earns at least this margin on eligible overseas group transactions, the pricing is generally accepted without detailed scrutiny. 

The change improves certainty, reduces compliance and litigation, and allows IT companies to plan and budget with greater confidence. 

• Much Higher Turnover Limit for Safe Harbour 

Another key change is the sharp increase in the Safe Harbour turnover threshold for eligible IT services—from ₹300 crore to ₹2,000 crore. This expansion brings many more mid-sized and large IT companies within the Safe Harbour framework, allowing them to avoid prolonged and complex transfer pricing audits. The move reflects the scale of India’s IT sector and acknowledges the need for greater certainty and simplified compliance even for larger players.  

• Automated Approvals and 5-Year Certainty 

Budget 2026 introduces a more automated and rule-based Safe Harbour approval mechanism. In most cases, approvals will be granted automatically based on predefined conditions, eliminating the need for manual officer-level review. This reduces discretion, speeds up processing, and aligns with the Government’s push towards a technology-driven and faceless tax administration. 

Further, once a taxpayer opts for the Safe Harbour regime, it can continue under the same framework for up to five consecutive years. This provides long-term certainty, reduces repetitive compliance, and enables more stable and predictable tax planning.  

2. Faster Advance Pricing Agreements (APA) for IT Services

For companies that do not choose Safe Harbour and instead want a customised arrangement, the Government has also improved the Advance Pricing Agreement, or APA, process for IT services. 

Under Budget 2026, unilateral APAs for IT services will be fast-tracked, with a target timeline of two years to complete the process. In some cases, companies can also request a short extension of up to six months. This makes it faster for companies to get certainty on their transfer pricing and reduces long waiting periods under the earlier system.  

3. DRP Timelines — Finally, No More Stopwatch Litigation

Budget 2026–27 puts an end to long-standing confusion around time limits in DRP cases, an issue that had turned many transfer pricing disputes into technical deadline battles rather than substantive tax debates. 

What’s changed? 

• Two clear stages, no overlap:
  Normal assessment timelines apply only up to the draft assessment order. Once the case moves to the DRP, a separate clock starts ticking. 
• DRP time won’t eat AO’s time:
  The period spent before the DRP is now excluded while computing limitation for the final order. In effect, the Assessing Officer gets extra time equal to the DRP duration. 
• Retrospective + prospective relief:
  Applies to past years (to settle ongoing litigation) and future years under the new Income-tax Act from April 2026. 

4. Clear Deadlines for TPO Orders

In transfer pricing assessments, the Assessing Officer cannot complete the assessment until the Transfer Pricing Officer (TPO) passes an order. Any delay in the TPO order can render the resulting adjustment invalid, making statutory timelines critical. 

Earlier, the law required the TPO to pass the order at least 60 days prior to the assessment deadline. This formulation led to widespread litigation due to ambiguity in computing the 60-day period, including: 

• whether the last day should be included or excluded, 
• treatment of February and leap years, and 
• interpretation of expressions such as “before” or “prior”.

As a result, several assessments were quashed on technical limitation grounds without examination of substantive transfer pricing issues. 

Budget 2026 replaces this uncertain day-counting mechanism with fixed calendar dates for passing TPO orders, eliminating interpretational disputes and providing objective certainty to both taxpayers and tax authorities. 

These prescribed dates reflect the intent of the original 60-day rule and do not materially alter the time available to the TPO. As the amendment is clarificatory in nature, it applies retrospectively, with the objective of resolving pending litigation and ensuring that transfer pricing disputes are decided on merits rather than procedural lapses.  

5. Fixed Fee for Late Filing of Form 3CEB

Budget 2026 changes the treatment of delayed filing of Form 3CEB, the mandatory report for international related-party transactions. Earlier, late filing attracted a discretionary penalty of ₹1 lakh, often leading to litigation on reasonable cause and procedural lapses. 

The new law replaces this with a certainty-based fixed fee regime, removing discretion altogether: 

• ₹50,000 if Form 3CEB is filed within one month after the due date 
• ₹1,00,000 if the delay exceeds one month 

The due date remains 31 October; filings made on or before this date attract no consequences. 

While the change is expected to reduce disputes, it also eliminates relief based on reasonable cause. Companies with transfer pricing exposure must therefore strengthen compliance controls and ensure timely filing of Form 3CEB.