India: Draft rules amending transfer pricing safe harbor regime

The Central Board of Direct Taxes (CBDT) released the draft income tax rules, 2026 along with the proposed forms, in relation to the Income tax Act, 2025, which is scheduled to become effective on April 1, 2026.

In line with the changes proposed by the Union Budget 2026-27, the draft rules would introduce significant amendments to the safe harbor regime for transfer pricing, including:

• Consolidation of multiple service categories (IT, ITeS, KPO and software R&D) defined in the current safe harbor rules under a single category of information technology (IT) services
• Revised profit margin of 15.5% (in relation to operating expenses incurred) for the consolidated IT services category, which is significantly lower than the prescribed range of profit margins of 17% to 24% across various services categories in the current safe harbour rules
• Enhanced applicable transaction value threshold from existing level of INR 300 crores (approximately US $33 million) to INR 2,000 crores (approximately US $220 million)
• Extension of safe harbour validity period for a period of five years
• New safe harbor for data center services

The compliance procedures and documentation requirements are also prescribed.

Comments on the draft rules and forms are requested.

Read a February 2026 report prepared by the KPMG member firm in India