The Finance Minister has announced a major policy update affecting India's IT services sector in Union Budget 2026, confirming that the safe harbor threshold for IT services has been raised to Rs 20 billion.

Safe Harbor Threshold Revision

The new threshold represents a significant increase in the safe harbor provisions for IT services companies operating in India. Under safe harbor rules, companies meeting certain criteria can benefit from simplified transfer pricing compliance requirements.

Impact on IT Services Sector

The revised threshold is expected to provide greater operational flexibility for IT services companies. Safe harbor provisions typically offer certainty in transfer pricing matters by providing predetermined margins or methods for specific transactions.

This policy change comes as part of the government's broader fiscal framework outlined in Union Budget 2026, reflecting the administration's approach toward the technology services industry.

Policy Framework

The announcement confirms the government's continued focus on providing clarity in tax regulations for the IT services sector. The safe harbor regime allows eligible companies to adopt prescribed margins without detailed transfer pricing documentation, subject to meeting specified conditions.

The Finance Minister has announced a significant policy shift in the Union Budget 2026, proposing the elimination of criminal penalties for taxpayers who fail to maintain adequate income tax records. This development marks a departure from the existing punitive framework that has governed tax compliance in India.

Key Policy Change

The proposed amendment focuses specifically on removing criminal sanctions that were previously applicable to individuals and entities for non-maintenance of proper income tax documentation. Under the current tax regime, failure to maintain prescribed records could result in criminal prosecution, creating a deterrent effect for taxpayers.

Implications for Taxpayers

This policy proposal could provide relief to millions of taxpayers who have operated under the constant concern of potential criminal liability for record-keeping deficiencies. The change suggests a move towards a more administrative approach to tax compliance, potentially reducing the fear factor associated with income tax obligations.

Regulatory Framework Shift

The proposed removal of criminal penalties indicates the government's intention to reform the tax enforcement mechanism. This change may signal a broader transformation in how tax authorities approach compliance issues, potentially favoring civil remedies over criminal prosecution for record-keeping violations.

The announcement forms part of the comprehensive Union Budget 2026 proposals, which will require legislative approval before implementation. The specific details of how this change will be operationalized and what alternative enforcement mechanisms might replace criminal penalties remain to be clarified through subsequent notifications and amendments to the Income Tax Act.