Budget 2026: GCCs get major boost as safe harbour threshold is raised from ₹300 crore to ₹2,000 crore

Amid the rapid expansion of global capability centres in India over the past two years and with the domestic software industry expected to reach $300 billion in revenue in FY26, the Union Budget 2026–27 has announced long-awaited tax reforms for the sector. 

The government has proposed to club software development services, IT-enabled services, knowledge process outsourcing, and contract R&D services related to software development under a single category—Information Technology Services—with a uniform safe harbour margin of 15.5% applicable across segments. At the same time, the threshold for availing the safe harbour for IT services has been sharply increased from ₹300 crore to ₹2,000 crore. The move is expected to provide significant relief to the sector, meeting a long-standing demand, particularly for global capability centres that operate under transfer pricing regulations.  

In recent times, Indian entities of foreign companies that provide services to overseas group entities on a cost-plus mark-up model have raised concerns over the rising incidence of transfer pricing disputes. Rahul Jain, Partner, Khaitan & Co, sees the changes to help significantly reduce the transfer pricing controversies in India. “This is likely to encourage the companies to opt for the safe-harbour rules and reduce the obligation to explain their independent margins and address additional questioning by the authorities” he said.    

Earlier, the safe harbour framework was restricted to entities with a turnover of up to ₹300 crore, limiting its availability to small players and effectively excluding medium and large enterprises. In addition, the prescribed mark-up for global capability centres was significantly higher, ranging from 17% to 24%, compared with 17% to 18% for IT and IT-enabled services. Along with standardising industry treatment, the government has also announced measures to fast-track the unilateral Advance Pricing Agreement (APA) process for IT services, with a target to conclude cases within two years, which can be extended to a period of six months on taxpayer’s request.  

“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 5 years at a stretch at its choice,” said Finance Minister Nirmala Sitaraman during her Budget speech.   

Much of this tax clarity has been welcomed by the industry as a long-awaited reform. Sindhu Gangadharan, SAP Labs India; Chairperson, Nasscom; President, Indo German Chamber of Commerce, calls greater predictability in tax and compliance frameworks as critical for long term growth. “For large, globally distributed engineering and operations teams, clarity reduces friction in decision-making and allows accountability for core platforms and products to sit firmly in one place. This matters for GCCs that are moving into full-stack ownership, where India increasingly builds, runs, and scales enterprise platforms for global customers,” she said.     

With the emphasis on research, development and innovation ecosystem in the Budget, Rajesh Varrier, President – Global Operations & Chairman and Managing Director, Cognizant India, sees these changes laying 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. “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,” he said.