India’s Finance Minister presented the Union Budget for fiscal year 2026-2027, which includes various tax measures including implementing the Income-tax Act, 2025, effective April 1, 2026.
The Union Budget 2026 focuses on long-term economic growth and tax certainty, as reflected in the broad-based reforms proposed across diverse sectors.
The budget also proposes the following changes to the transfer pricing regime.
The budget proposes a plan to fast-track unilateral APAs for companies engaged in IT services so the agreements would be finalised within two years from the date of application.
The budget would also enable associated enterprises (AEs) covered by an APA to file a modified tax return to claim a refund of any additional taxes paid or withheld. This would be applicable for APAs entered into on or after 1 April 2026, in respect of fiscal years beginning on or after 1 April 2026.
The timelines provided in Section 144C of the IT Act, 1961, operate for finalisation of assessments, notwithstanding the time limit provided in Sections 153 and 153B of the IT Act, 1961. The clarification comes into retrospective effect from 1 April 2009 for Section 153 and from 1 October 2009 for Section 153B. A similar amendment is to be carried out in the IT Act.
The budget clarifies that the limitation date is included in computing the 60 days, aligning with legislative intent and removing interpretational disputes. The clarification comes into retrospective effect from 1 June 2007. A similar amendment is proposed to be carried out in the IT Act.
The penalty for failure to file a transfer pricing audit report would be replaced by a graded fee structure, with the fee amount increasing based on the period of delay.
For more information on the transfer pricing implications of the budget, please consult your regular BDO contact or the authors of this article.
Munjal Almoula
Rajiv Bhutani
BDO in India
The Union Budget 2026 focuses on long-term economic growth and tax certainty, as reflected in the broad-based reforms proposed across diverse sectors.
The budget also proposes the following changes to the transfer pricing regime.
Reevaluation of Safe Harbour Rules
- The turnover threshold to determine the availability of safe harbours would be raised from INR 3 billion to INR 20 billion for information technology (IT) services.
- A uniform safe harbour margin of 15.50% is proposed for the IT services category.
- The safe harbour regime would move to an automated, rule-based process.
Advance Pricing Agreements (APAs)
The budget proposes a plan to fast-track unilateral APAs for companies engaged in IT services so the agreements would be finalised within two years from the date of application.The budget would also enable associated enterprises (AEs) covered by an APA to file a modified tax return to claim a refund of any additional taxes paid or withheld. This would be applicable for APAs entered into on or after 1 April 2026, in respect of fiscal years beginning on or after 1 April 2026.
Time Limit for Completion of Assessment Under Section 144C
The timelines provided in Section 144C of the IT Act, 1961, operate for finalisation of assessments, notwithstanding the time limit provided in Sections 153 and 153B of the IT Act, 1961. The clarification comes into retrospective effect from 1 April 2009 for Section 153 and from 1 October 2009 for Section 153B. A similar amendment is to be carried out in the IT Act.
Manner of Computing 60 Days for Passing the Transfer Pricing Order
The budget clarifies that the limitation date is included in computing the 60 days, aligning with legislative intent and removing interpretational disputes. The clarification comes into retrospective effect from 1 June 2007. A similar amendment is proposed to be carried out in the IT Act.
Penalty Converted Into Fee
The penalty for failure to file a transfer pricing audit report would be replaced by a graded fee structure, with the fee amount increasing based on the period of delay.For more information on the transfer pricing implications of the budget, please consult your regular BDO contact or the authors of this article.
Munjal Almoula
Rajiv Bhutani
BDO in India