Budget 2026: IT and data centres emerge as core growth engines
Unified safe harbour norms, automated approvals and long-term incentives for data centres are intended to provide certainty and mobilise global capital
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Published: Feb 1, 2026 12:33 PM | 2 min read
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In a decisive move to strengthen the IT sector’s role as India’s primary growth engine, the government has unveiled a comprehensive overhaul of the tax framework governing technology services and digital infrastructure, signalling a clear shift towards scale, certainty and long-term investment.
Acknowledging India’s global leadership in software development services, IT-enabled services, knowledge process outsourcing and contract research and development linked to software, the government has proposed to consolidate these interconnected segments into a single category of information technology services. A uniform safe harbour margin of 15.5 percent is proposed to apply across all IT services, simplifying compliance and reducing disputes.
The scope of the safe harbour regime is set to expand sharply, with the eligibility threshold proposed to rise from ₹300 crore to ₹2,000 crore. In another significant departure from past practice, approvals for IT safe harbour applications will move to a fully automated, rule-driven mechanism, removing the requirement for scrutiny or acceptance by tax officers. Once exercised, the option can be continued for five consecutive years at the taxpayer’s choice, offering unprecedented predictability.
For IT services companies opting for advance pricing agreements, the government has proposed to fast-track the unilateral APA process, with an intended closure within two years. On request, this timeline may be extended by six months. The facility to file modified returns, currently limited to the entity entering into an APA, is also proposed to be extended to its associated enterprises, easing group-level tax adjustments.
The proposals also underline a strong push to attract global digital infrastructure investments. To boost India’s data centre ecosystem, a tax holiday until 2047 has been proposed for foreign companies providing cloud services globally using data centre facilities based in India. These companies will be required to service Indian customers through an Indian reseller entity. Where data centre services are provided by a related Indian entity, a safe harbour margin of 15 percent on cost has been proposed.
Extending the focus to electronics manufacturing and logistics efficiency, the government has proposed a safe harbour for non-residents operating competent warehousing in bonded warehouses, with profits capped at 2 percent of invoice value, resulting in an effective tax incidence of about 0.7 percent.
Taken together, the measures mark one of the most far-reaching attempts to recast India’s IT and digital infrastructure tax regime, positioning stability and scale as central levers for sustaining technology-led growth.
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