India Raises Tech Tax Threshold to $22B, Cuts Red Tape

India's tech industry just got a major boost that removes years of friction between companies and tax authorities.

The country's 2026 budget introduces sweeping changes to how technology services are taxed. Instead of navigating separate categories for software development, IT services, outsourcing, and research, companies now work with a single category and a common 15.5% safe harbor margin.

The threshold for accessing these simplified rules jumped from $3.5 billion to $22 billion rupees. That means far more companies can now operate with tax certainty, and the approval process is fully automated without requiring individual tax officer reviews.

Even better, once a company applies, the safe harbor continues automatically for five years. This addresses a longstanding pain point that led to frequent disputes between tech firms and the Income Tax department.

Global capability centers are the big winners here. These are operations where international companies build entire platforms in India, and they've become the growth engine of the country's tech sector.

Monica Pirgal, CEO of Bhartiya Converge, captured the shift perfectly. "The government has removed the core friction points that global enterprises faced while expanding in India," she said. "Scale is no longer penalized but actively encouraged."

The budget also streamlines Advance Pricing Agreements, committing to conclude them within two years. This gives companies another layer of predictability when planning long-term operations.

The Ripple Effect

For mid-sized companies and private equity-backed firms, these changes lower the barrier to starting operations in India. Companies can now "start small, build confidently, and scale" without worrying about tax complications down the road, according to InCommon CEO Piyush Kedia.

The impact extends beyond individual companies. Nasscom, India's technology industry association, called it "a decisive shift away from process-heavy compliance towards clarity, predictability and trust-based governance."

India already hosts thousands of global capability centers employing hundreds of thousands of engineers. With these changes, that number is expected to grow significantly as more international firms choose India for full-stack platform ownership.

Wipro's CFO Aparna Iyer noted the changes will "provide tax certainty and reduce the cost of compliance" across the sector. That means more resources going toward innovation instead of paperwork.

The certainty matters especially for technology platforms designed to run for years with globally distributed teams. When a company knows its tax situation is stable, it can make bolder commitments to building in India.

India just made a clear statement: it wants to be the world's premier destination for technology operations, and it's backing that ambition with practical policy.