01
Uniform 15.5% margin
India's safe harbour regime now offers a uniform 15.5% margin for all IT and ITeS GCCs, replacing multiple category-specific rates.
02
Higher turnover threshold
The turnover threshold has been raised from INR 300 crore to INR 2,000 crore, opening the regime to a far wider pool of GCCs.
03
Five-year election block
Taxpayers can elect the regime for a five-year consecutive block, reducing recurring compliance effort significantly.
04
Policy shift to prevention
The reforms signal a policy shift from dispute resolution after the fact to prevention through clearer, rules-based settings.
Few tax issues have shaped India's GCC story as much as transfer pricing. That the global capability centre (GCC) sector in India has witnessed huge litigation around transfer pricing is no secret, quickly becoming one of the most important determinants for enterprises deciding whether the country would be their strategic growth platform or a litigation minefield.
But with India resetting its transfer pricing rules and rationalising the safe harbour regime, the risk–reward equation has changed. Mid-market global enterprises can now build and scale GCCs in India with a level of tax certainty previously unavailable.
Why transfer pricing matters for GCCs
For a GCC structured as a captive service provider, transfer pricing determines the Indian entity's taxable income and, consequently, its Indian tax liability.
Understanding how the arm's length principle is applied in practice is essential for any enterprise operating or planning to operate a GCC in India.
Arm's length compensation
Transfer pricing determines what the GCC earns for services rendered to its overseas parent, based on its functional profile: the functions performed, assets employed, and risks assumed (FAR analysis).
Cost-plus remuneration and TNMM
Most GCCs are compensated on a cost-plus basis. The arm's length test is applied using the Transactional Net Margin Method (TNMM), the most common method for benchmarking captive service providers in India.
OP/OC benchmarking
The Operating Profit to Operating Cost ratio is compared against margins of comparable independent companies through a detailed comparability analysis to establish the arm's length range.
Significant compliance implications
If a GCC's profitability falls outside the arm's length range, a transfer pricing adjustment may be required. For GCCs with multiple service lines and complex value chains, this carries material risk.
How complexity has led to litigation
The arm's length principle has never been the real problem. Applying it consistently across increasingly sophisticated GCC business models has been.
As Indian GCCs evolved from routine back-office support to complex, multi-function operations, the practical challenges of transfer pricing compliance grew significantly.
Evolving GCC functional profiles
As Indian GCCs moved beyond routine back-office support, accurately characterising their functional profile became significantly more complex, directly affecting method selection and comparability outcomes.
Divergent comparability analyses
Taxpayers and tax authorities routinely selected different comparable companies and applied different filters, producing divergent arm's length ranges and frequent transfer pricing adjustments.
High litigation perception
Repeated disputes created a perception of India as a high-controversy transfer pricing jurisdiction, a factor that began influencing GCC location and investment decisions.
This contributed to a perception among multinational enterprises that India was a jurisdiction with a relatively high degree of transfer pricing controversy.
What changed in India's policy framework
Policymakers in India have long recognised the need to balance robust transfer pricing enforcement with tax certainty for investors.
Over the past decade, India has introduced several measures to reduce disputes and provide clarity for the GCC sector, most notably the APA programme and the safe harbour regime.
Advance Pricing Agreements (APAs)
Taxpayers can pre-agree an arm's length pricing methodology with the tax authorities for a specified period, significantly reducing the risk of future litigation.
Fast-track unilateral APA
Budget 2026 introduced an expedited APA process with a targeted two-year timeline, making the mechanism more accessible beyond large multinational groups.
Uniform 15.5% operating profit margin
The revised safe harbour replaces category-specific margins of 17–24% with a single 15.5% rate for all IT and ITeS GCCs, simplifying compliance significantly.
INR 2,000 crore turnover threshold
The qualifying threshold has been raised from INR 300 crore to INR 2,000 crore, extending safe harbour access to a far broader pool of mid-market GCCs.
Prevention over dispute resolution
The reforms signal a policy shift from resolving transfer pricing disputes after they arise to preventing them through clearer, rules-based policy settings.
How the revised safe harbour works in practice
In transfer pricing, a safe harbour is a prescribed framework under which the tax administration agrees to accept a taxpayer's declared transfer pricing outcome, without requiring a full arm's length benchmarking analysis.
For IT and IT-enabled GCCs, India's revised regime introduces three important changes that together make the safe harbour a practical option for a much broader pool of businesses.
Streamlined categorisation
Multiple IT and IT-enabled service categories consolidated into a single Information Technology Services category with a uniform 15.5% operating profit margin.
Substantially higher turnover threshold
Threshold raised from INR 300 crore to INR 2,000 crore, enabling a much larger pool of GCCs to qualify for the regime.
Five-year election block
Taxpayers can elect the regime for a five-year block, providing greater certainty and meaningfully reducing recurring compliance effort.
Taken together, these reforms make the safe harbour regime a practical option for GCCs undertaking routine or limited-risk service functions, offering greater tax predictability without the cost and time of an APA.
Mechanics and impact of safe harbour for GCCs
An eligible GCC that provides routine Information Technology Services can elect to apply the safe harbour regime, provided it satisfies the prescribed eligibility conditions.
Where the regime applies, the GCC is remunerated at the prescribed margin, and tax authorities accept the transfer pricing outcome for qualifying transactions without further scrutiny.
15.5% OP/OC margin accepted
Tax authorities accept the GCC's transfer pricing outcome for qualifying international transactions at the 15.5% margin, without requiring a full arm's length benchmarking exercise.
Five-year consecutive block
Eligible taxpayers elect the regime for five consecutive years. Withdrawal is permitted, but re-entry within the same block is not, so the decision warrants careful upfront assessment.
Predictability over precision
By replacing prolonged benchmarking disputes with a rule-based framework, the safe harbour reduces compliance costs, lowers litigation risk, and provides businesses with greater certainty over their Indian tax position.
For CFOs and GCC leaders, the significance of these reforms is not just the prescribed margin. It is the ability to make long-term investment decisions with a much higher degree of confidence.
Embark's practitioner perspective on structuring GCCs for certainty and scale
For organisations navigating this new landscape, a critical part of the work is disciplined service classification and structuring: mapping activities to the relevant Indian tax framework, assessing which service lines may qualify for the safe harbour regime, and identifying areas better suited to an APA or bespoke benchmarking analysis. The objective is to ensure that the GCC's service portfolio, pricing policies, and documentation align with both commercial realities and the available tax mechanisms.
As the safe harbour regime assumes a more prominent role in GCC planning, the focus should shift from defending transfer pricing positions after the fact to embedding robust pricing policies at the design stage. Safe harbour offers a practical path to certainty for routine or limited-risk activities, while APAs or tailored approaches remain better suited to higher-value or complex functions. Ultimately, tax certainty is valuable only if it preserves operating flexibility.
In my view, the most successful GCCs will be those that treat tax as part of the operating model rather than a compliance exercise. Safe harbour and APAs are tools to achieve that objective, not objectives in themselves.
At Embark, we advise organisations on transfer pricing for GCCs in India, from initial location assessment through to scaling multi-function GCCs, evaluating the transfer pricing implications of the operating model and ensuring these are reflected in intercompany agreements and pricing policies.
Companies rarely choose a GCC location based on tax alone. They choose it based on confidence that the business can scale without unexpected tax controversy. The recent safe harbour reforms move India closer to that objective. The opportunity now is to use them thoughtfully, aligning tax policy with commercial realities from the outset.
About the author
Alok Jain
Head of Corporate Taxation, Embark
A Chartered Accountant with over 12 years of experience in corporate and international taxation, Alok brings deep expertise across tax structuring, cross-border transactions, transfer pricing, and regulatory compliance.