Union Budget: Key Amendments in Provisions of Transfer Pricing and International Taxation

The Union Budget marks a progressive shift in India’s international tax and transfer pricing framework, aligning it with the country’s broader objective of enhancing tax certainty, promoting ease of doing business, and strengthening its position as a global investment destination.

Through a mix of procedural streamlining, dispute resolution reforms, and targeted incentives for the technology and electronics sectors, the proposed amendments aim to create a more predictable, efficient, and growth-oriented tax environment.

Key Amendment provided by Union Budget under Transfer Pricing and International Taxation are:

1. Time Limit for issuance of order by Transfer Pricing Officer

1. Income Tax Act, 1961

• Under Income Tax Act, 1961, as per Section 92CA(3A),   Where a reference is made to Transfer pricing officer, the order u/s 92CA(3) may be made at any time before 60 days prior to the date on which the period of limitation specified in section 153 or Section 153B of the Act expires.
• Union Budget has clarified that such period of 60 days shall be computed in following manner:

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2. Income Tax Act, 2025

• Under Section 166(7) of IT Act, 2025, Where a reference was made to TPO, an order u/s 166(6) of the Act shall be made at any time 60 days before the expiry of the limitation period specified u/s 286 or 296.
• Union budget has proposed to reduce such time limit to one month prior to the month in which limitation expires  and has clarified that following shall be due date for issuance of order:

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Limitation Expiry

Due date of issuance of order u/s 92CA(3)

31st March of any year

31st January

31st December of any year

31st October

2. Amendment in Safe Harbour Provisions

• Considering the significance of the IT sector for India’s growth trajectory, the Union Budget has proposed to club following services under single category of Information Technology Services:
  
  • software development services, 
  • IT enabled services, 
  • knowledge process outsourcing services; and 
  • contract R&D services 

• Accordingly, all services shall be subject to a common safe harbour margin of 15.5%.

• Further, the threshold for availing safe harbour for IT services has been proposed to enhance from INR 300 Crores to INR 2000 Crores

• Safe harbour for IT services shall be approved by an automated rule-driven process, and once applied by an IT Services company, the same can be continued for a period of 5 years at a stretch.

3. Advanced Pricing Agreement (APA)

• As per Section 169(1) of the IT Act, 2025, if return for any tax year covered by an APA has been furnished by any person, before the date of entering into the said agreement, he shall furnish a modified return, in accordance with and limited to the agreement, within 3 months from the end of the month in which the agreement was entered into. 

• Union budget has proposed to provide that where an income is modified as a result of APA entered into with any person then, such person shall, or any other person being an associated enterprise, may, furnish a return or a modified return, in accordance with and limited to the agreement; within a period of 3 months from the end of the month in which the said agreement was entered into.

• This amendment will take effect from 1st April, 2026.

• Under proposed to enable associate entities to file modified return to claim refund of any additional taxes paid by it or withheld from its income. 

• Unilateral  APA process for IT services is proposed to be fast-tracked with an endeavour to conclude it within two years, which can be extended by 6 months on taxpayer’s request. 

4. Exemption of Income to Foreign Companies

• Schedule IV of the IT Act has been proposed to include a new column 13C which provides for exemption to foreign companies from any income accruing or arising India deemed in or to accrue or arise in India by way of procuring data centre services from a specified data centre. 

• Such exemption shall be provided subject to following conditions:

1. Such foreign company is notified by the Central Government in this behalf; 
2. such foreign company does not own or operate any of the physical infrastructure or any resources of the specified data centre; 
3. all sales by such foreign company to users located in India are made through a reseller entity being an Indian company; 
4. such foreign company maintains and furnishes specified information in such form and manner, as prescribed; and 
5. such exemption shall be available up to tax year ending on the 31st March, 2047.”; 

5.  Exemption to Foreign companies providing capital goods, equipment or tooling to a contract manufacturer for use in electronic manufacturing in India

• Such exemption shall be available with respect to any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India. 

• Such exemption shall be available subject to following conditions:

1. Ownership of such capital goods, equipment or tooling remains with the foreign company;   

2. such capital goods, equipment or tooling is under the control and direction of the contract manufacturer;  

3. the contract manufacturer is located in a custom bonded area, that is, a warehouse referred to in section 65 of the Customs Act, 1962 (52 of 1962); 

4. the contract manufacturer produces electronic goods on behalf of the foreign company for a consideration; 

5. such exemption shall be available up to the tax year 2030-2031.

Conclusion:

The Union Budget proposes a series of reforms in transfer pricing and international taxation aimed at enhancing certainty, efficiency, and ease of compliance. Key measures include rationalisation of timelines for transfer pricing assessments, expansion and simplification of safe harbour provisions for the IT sector, and strengthening of the APA framework, including enabling associated enterprises to seek corresponding relief. These steps collectively seek to reduce litigation and provide faster dispute resolution.

Additionally, the Budget introduces targeted tax exemptions to attract foreign investment in India’s data centre and electronics manufacturing ecosystem. By offering conditional reliefs to foreign companies and encouraging structured manufacturing and digital infrastructure models, the proposals reinforce India’s objective of becoming a global hub for technology services and electronics production while ensuring a stable and investor-friendly tax regime.

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