India: Tax measures in 2026-2027 budget include significant transfer pricing changes
Other direct and indirect tax and customs measures also included.
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february 2, 2026
The Finance Minister presented the Union Budget for fiscal year 2026-2027, which includes various tax measures aimed at implementing the Income-tax Act, 2025, effective April 1, 2026.
In particular, the 2026-2027 budget proposes:
- Tax holidays for foreign companies using data centers in India or providing tools/machinery to contract manufacturers in custom bonded warehouses in India
- Rationalization of minimum alternate tax (MAT) provisions
- Taxation of buyback proceeds as capital gains rather than dividends
- Increase in securities transaction tax on futures and options
- Extension of the international financial services center (IFSC) holiday from 10 to 20 years
- Rationalization of tax deduction at source (TDS) and tax collection at source (TCS) rates and other provisions
- Various amendments to goods and services tax (GST) and customs
- Excise duty relief for biogas-blended compressed natural gas (CNG) and unblended diesel
The budget also proposes the following significant transfer pricing changes:
- Rationalization of transfer pricing safe harbor rules
- Inclusion of software development services, information technology (IT) enabled services, knowledge process outsourcing services, and contract research and development (R&D) services under a single category of “IT services,” with a common safe harbor cost plus margin of 15.5% (previously 17 or 18% based on size, and 24% for R&D services)
- Increase in threshold for availability of safe harbor provisions from INR 3 billion to INR 20 billion, with an option to apply for a continuous period of five years, through an automated, rule‑based approval process
- Introduction of safe harbor of 15% on cost for Indian companies providing data center services to a foreign related party reseller entity
- Plan for unilateral advance pricing agreements (APAs) for companies engaged in IT services be fast-tracked for completion within a period of two years, with an extension of six months at the request of the taxpayer
- Various procedural changes affecting transfer pricing
Read a February 2026 report prepared by the KPMG member firm in India