Global Partner. Integrated Solutions.
10 February 2026
Draft Income-tax Rules, 2026 notified for Safe Harbour for IT Services
 
Pursuant to the clarification provided in the Hon'ble Finance Minister's Budget Speech regarding the revamping of the Safe Harbour Rule, the Government has introduced Rule 91 of the Income-tax Rules, 20261 which provides a five-year transfer pricing compliance framework for eligible IT service providers, aimed at delivering greater certainty, simplicity, and a reduced compliance burden.

  Nature of services covered
  • Software development services
  • Information technology-enabled services
  • Knowledge process outsourcing services
  • Contract research and development services wholly or partly relating to software development.
(collectively referred to as the 'information technology services')

  Conditions
  • Applicable to taxpayers with insignificant risks (Refer to detailed guidance under Rule 87)
  • Operating revenue - Maximum INR 2,000 crores
  • Minimum mark-up on operating costs - 15.5%.
  Process for filing
  • Form 49 shall be furnished electronically (under digital signature or through electronic verification code)
  • Due date - Shall be furnished anytime during the first of the five consecutive tax years, up to 30th June of Year 1. i.e., For FY 2026-27, it shall be furnished anytime between 1 April 2026 to 30 June 2027.
  Coverage (years)
  • Once exercised, it shall continue to remain in force for 5 consecutive tax years.
  Time period for processing
  • Taxpayer shall be intimated (for acceptance or rejection) within 2 months from the end of the month of such filings
  • Opportunity to rectify defects before rejection shall be granted to taxpayers.
  Annual Compliance
  • Timely filing of income-tax returns for the covered period of 5 years
  • Annual statement (Years 2-5) disclosing details of eligible transactions, quantum, and profit margins
  • Reference can be made by the Assessing Officer for scrutiny of non-eligible transactions.
  Withdrawal Option
  • Can be withdrawn anytime, but re-entry is not permitted during the 5-year period.

Our Comments

Safe Harbour regime has been significantly overhauled to provide greater certainty and reduce transfer pricing litigation for IT services and related industries. In light of the simplified application and streamlined processing methodology, it would be worthwhile to assess whether the Safe Harbour Rules mechanism is gaining acceptance among taxpayers operating in the IT industry. The Director General of Income-tax (Systems) shall lay down the data structure, standards, formats, and procedure of furnishing and verification of Forms, statement, orders and declarations etc.
  1. https://incometaxindia.gov.in/Documents/draft-income-tax-rules/draft-Income-tax-Rules-2026.pdf
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