Budget 2026: GCC and IT companies launch with a safe harbor shield

Budget Safe Harbour Reforms, Data Centre Tax Holiday to Boost IT and AI Growth

Changes proposed by Finance Minister Nirmala Sitharaman to the safe harbour regime are expected to provide greater tax certainty to India’s IT and technology sector, while reducing transfer pricing disputes and easing compliance for companies.

Under the new proposals, the turnover threshold to qualify for safe harbour benefits for IT services providers has been increased sharply to Rs 2,000 crore from Rs 300 crore. In addition, a uniform safe harbour operating profit margin of 15.5% has been introduced. Companies operating within this margin while serving foreign group entities will not face tax scrutiny over pricing.

The government has also merged categories such as software development services, IT-enabled services (ITES), knowledge process outsourcing (KPO) and contract R&D under a single IT services head. Earlier, safe harbour margins for these services ranged between 17% and 18%.

Industry experts say these steps will reduce tax disputes and improve ease of doing business. Ashish Aggarwal, Vice-President (Policy) at Nasscom, said the move would lower compliance costs and help companies focus on growth rather than litigation.

Microsoft India & South Asia President Puneet Chandok said long-term tax certainty is crucial as AI workloads and digital infrastructure expand rapidly.

The Budget also announced a 20-year tax holiday for foreign companies investing in data centres in India. Experts believe this signals India’s readiness to host global-scale AI and cloud infrastructure. The policy is expected to attract large investments and provide long-term confidence to global technology players.

Raju Vegesna, Chairman and MD of Sify Technologies, said building cloud and AI infrastructure requires long-term planning and the tax holiday till 2047 offers exactly that stability. He added that the move could make India a low-cost, high-scale destination for global digital services.

India is already seeing massive investments in data centres. Global cloud giants like Google, Microsoft and Amazon Web Services, along with Indian groups such as Reliance, Adani, Tata and L&T, are expected to invest over $70 billion in the next five to seven years, increasing the country’s data centre capacity from 1 gigawatt to nearly 10 gigawatts.

The reforms are seen as a major step toward strengthening India’s position as a global technology and digital infrastructure hub.