The Budget has rolled out a sweeping reset of India’s transfer pricing framework, aiming to cut litigation, improve tax certainty and make the country a more attractive base for multinational companies (MNCs) and global capability centres.Presenting the proposals, finance minister Nirmala Sitharaman announced far-reaching reforms to safe harbour rules and Advance Pricing Agreements (APAs), with a sharp focus on the IT and technology-driven sectors.
A key change is the consolidation of software development, IT-enabled services, KPO and contract R&D into a single category of “Information Technology Services”, with a uniform safe harbour margin of 15.5%. This replaces multiple, higher margins and is expected to address long-standing disputes around classification and profitability. Safe harbour refers to prescribed pricing margins under which tax authorities accept a company’s transfer pricing without scrutiny, giving taxpayers certainty and protection from disputes.The eligibility threshold for opting into safe harbour has also been raised sharply from Rs. 300 crore to Rs. 2,000 crore, significantly widening coverage to include mid-sized and large IT service providers. Applications will move to an automated, rule-based approval process, eliminating officer-level examination, and companies can lock in safe harbour for up to five consecutive years.“These changes are expected to significantly reduce disputes and compliance burden for many multinational IT companies and global capability centres operating from India,” said Ameya Kunte, founder of Globeview Advisors, adding that the reduction in acceptable margins from the earlier 17–18% range to 15.5% is a major sweetener for industry.According to CBDT data, a total of 815 Advance Pricing Agreements (APAs) have been concluded till March 2025. The 174 APAs signed in 2024-25 is the highest ever in a single year since the APA regime was launched in 2012. APAs help eliminate long-drawn disputes over transfer pricing by setting agreed pricing methodologies in advance.The budget proposals strengthen the APA program. It proposes fast-tracking unilateral APAs for IT services, with an endeavour to conclude cases within two years, extendable by six months at the taxpayer’s request — a sharp improvement over historical timelines that often stretched beyond three years.Another significant reform allows associated enterprises of an APA-covered taxpayer to file modified returns within three months of the agreement being signed, aligning group-level tax positions.“The amendment gives associated enterprises a statutory route to align their own returns with the agreed pricing. This may reduce instances of economic double taxation within the group and materially strengthen the effectiveness of the APA programme,” said Rahul Charkha, partner, Economic Laws Practice.To curb procedural disputes, the Budget also replaces the existing 60-day deadline for transfer pricing officers to pass orders with a clearer month-based timeline, a move aimed at eliminating interpretational litigation over limitation periods.Industry experts see the package as a decisive shift towards certainty-led tax administration. “The expansion of safe harbour, automated approvals and faster APAs reflect a strong policy intent to simplify compliance and significantly reduce litigation,” said Sandeep Bhalla, partner, Dhruva Advisors.
