FM brings IT services under single category in Union Budget: What this means for IT companies

Union Budget 2026 recognises the Indian IT sector as one of the key growth drivers for the country’s economy. Union Finance Minister Nirmala Sitharaman proposed a single category for companies offering IT services in the country. Highlighting India’s position as a global leader in software development services, IT-enabled services, Knowledge Process Outsourcing (KPOs) and contract research and development (R&D); FM suggested bringing all under the category named ‘Information Technology Services’. “India is recognised as a global leader in software development services, IT-enabled services, knowledge process outsourcing, and contract R&D services. All these segments to be clubbed under a single category called Information Technology Services,” Sitharaman said. This means that companies offering all these services will be clubbed under a single category, Information Technology Services, with a common safe harbour margin of 15.5%.The Finance Minister further said that Safe harbour for IT services shall be approved by an automated rule-driven process without any need for a tax officer to examine and accept the application. “A common safe harbour margin of 15.5% will apply to all IT services. The threshold for availing safe harbour increased from Rs 300 crore to Rs 2,000 crore. Safe harbour approvals for IT services will be processed via an automated, rule-driven system, removing the need for examination by tax officers,” she said.For IT services companies who want to conclude Advance Pricing Agreement (APA), the Finance Minister announced a fast track Unilateral APA process for IT services and endeavour to conclude it within a period of 2 years. The period of 2 years can be extended further by a period of 6 months on taxpayer’s request. The facility of modified returns available to the entity entering APA to its associated entities is also extended.The Union Budget also introduced measures to support IT services and attract global investment. For companies opting for Advanced Pricing Agreements (APA), the processing time will be reduced to two years, with a possible six-month extension. The facility of modified returns will also be extended to associated entities entering into an APA.