Union Finance Minister Nirmala Sitharaman, in her Budget 2026 speech, announced a wide-ranging set of tax reforms aimed at strengthening cooperatives, reinforcing India’s leadership in information technology services, and attracting global investment, while also streamlining tax administration and plugging arbitrage opportunities.
Boost for Cooperative Societies
The Budget proposes significant tax relief for cooperative societies to strengthen rural and agricultural value chains. Currently, primary cooperative societies supplying milk, oilseeds, fruits or vegetables grown by their members enjoy tax deductions. This benefit will now be extended to include the supply of cattle feed and cotton seed produced by members, broadening the scope of eligible agricultural activities.
In another key reform, the Finance Minister proposed allowing inter-cooperative society dividend income as a deduction under the new tax regime, provided the income is further distributed to members. This move is expected to encourage reinvestment within the cooperative ecosystem.
Additionally, a three-year exemption has been proposed for dividend income received by notified national cooperative federations on investments made in companies up to January 31, 2026. This exemption will apply only where the dividend income is passed on to member cooperatives.
IT Services Get a Unified Tax Framework
Recognising India’s position as a global hub for software development, IT-enabled services, knowledge process outsourcing and contract R&D, the Budget proposes to club all these segments under a single category of “Information Technology Services.”
A uniform safe harbour margin of 15.5 percent will apply across all IT services, replacing the earlier fragmented approach. To benefit larger firms, the threshold for availing safe harbour has been sharply increased from ₹300 crore to ₹2,000 crore.
In a major administrative reform, approval of safe harbour applications for IT services will now be done through an automated, rule-driven process, eliminating the need for scrutiny by tax officers. Once opted, the safe harbour can be continued for five consecutive years.
For companies seeking Advance Pricing Agreements (APAs), the government will fast-track unilateral APA approvals, targeting completion within two years, extendable by six months on request. The facility of filing modified returns will also be extended to associated entities of companies entering into APAs.
Incentives to Attract Global Business and Investment
To position India as a global data and cloud services hub, the Budget proposes a tax holiday till 2047 for foreign companies providing cloud services globally using data centres located in India. However, services to Indian customers must be routed through an Indian reseller entity.
Where data centre services are provided by a related entity in India, a safe harbour profit margin of 15 percent on costwill apply.
To support just-in-time logistics for electronic manufacturing, non-residents storing components in bonded warehouses will be offered a safe harbour profit margin of 2 percent of invoice value, resulting in an effective tax incidence of about 0.7 percent—significantly lower than competing jurisdictions.
Further, to encourage toll manufacturing, non-residents supplying capital goods, equipment or tooling to toll manufacturers in bonded zones will be granted income tax exemption for five years.
To attract global talent, the government proposes a five-year exemption on non-India sourced income for non-resident experts working in India under notified schemes. Non-residents paying tax on a presumptive basis will also be exempted from Minimum Alternate Tax (MAT).
Tax Administration and Accounting Reforms
To reduce compliance burden, a Joint Committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes will be set up to incorporate Income Computation and Disclosure Standards (ICDS) directly into Indian Accounting Standards (IndAS). From tax year 2027–28, separate accounting under ICDS will be eliminated.
The Budget also proposes rationalising the definition of “accountant” under Safe Harbour Rules, supporting the government’s vision of developing home-grown accounting and advisory firms into global players.
Other Key Tax Proposals
Addressing concerns around misuse of buyback routes, the government proposes to tax buybacks as capital gains for all shareholders, while imposing an additional buyback tax on promoters. This will result in an effective tax rate of 22 percent for corporate promoters and 30 percent for non-corporate promoters.
The TCS rate on alcoholic liquor, scrap and minerals will be rationalised to 2 percent, while the rate on tendu leaves will be reduced from 5 percent to 2 percent.
To curb excessive speculative trading, the Securities Transaction Tax (STT) on futures will increase from 0.02 percent to 0.05 percent, while STT on options premium and option exercise will rise to 0.15 percent.
Continuity in Corporate Tax Policy
Reiterating the government’s commitment to a simplified corporate tax regime introduced in 2019, the Finance Minister said the reforms aim to allow businesses to focus on productive activity rather than navigating complex deductions and exemptions.
