Global Capability Centre India 2026 Guide to Structure, Tax and Compliance

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

A foreign group usually sets up a global capability centre (GCC) in India as a wholly owned Private Limited subsidiary under the automatic route. The subsidiary serves the parent on cost plus terms and exports its services under a GST Letter of Undertaking. From tax year 2026-27, rule 89 of the Income Tax Rules, 2026 accepts a 15.5 percent margin on operating expense for IT services, where operating revenue does not exceed INR 2,000 crore.

This page is for the parent's CFO and the India finance lead who will run the centre. It covers the entity choice, cost plus pricing and the safe harbour, the SEZ, STPI and domestic tariff area options, GST, permanent establishment risk, hiring and the yearly filings.

What is a global capability centre in India?

A global capability centre is an Indian entity that a foreign group owns and uses to do work for the group. Typical work is software engineering, finance operations, analytics, customer support and research. Indian law has no GCC licence. The centre is a company, a branch or an LLP, and the normal company, tax, FEMA and labour laws apply.

Older names for the same model are captive centre, offshore development centre and shared service centre. The label does not change the tax result. What matters is what the centre does, who bears the risk and how the parent pays for the work.

Most centres work for the group only. They bear little market risk, so the parent pays them their costs plus a markup. That pricing is a transfer pricing question, and the safe harbour rules list the work types that qualify for a fixed margin.

Rule 88 of the Income Tax Rules, 2026 lists the eligible international transactions. Rule 89 sets the margin for each. The table maps common GCC work to those rules.

GCC work	Category in rule 88	Safe harbour margin under rule 89	Revenue limit under rule 89
Software development and maintenance	Information technology services, item (a)(i)	Operating profit of at least 15.5% of operating expense	INR 2,000 crore
Finance, HR and customer operations (IT enabled services)	Information technology services, item (a)(ii)	15.5%	INR 2,000 crore
Analytics, research and other knowledge process outsourcing	Information technology services, item (a)(iii)	15.5%	INR 2,000 crore
Contract research and development relating to software	Information technology services, item (a)(iv)	15.5%	INR 2,000 crore
Contract research and development relating to generic pharmaceutical drugs	Item (d)	24%	INR 300 crore
Data centre services	Item (h)	15%	None stated
Low value adding services received from the group	Item (g)	Markup not above 5%	INR 10 crore

Sources: rules 88 and 89 of the Income Tax Rules, 2026.

Which entity should a foreign group use for a GCC?

Most groups use a wholly owned Private Limited subsidiary. It is a separate taxpayer, it can opt for 22 percent tax under section 200 of the Income Tax Act, 2025, and its services to the parent can be exports for GST. A branch office is taxed as a foreign company at 35 percent plus surcharge and cess.

IT services sit under the automatic route for foreign direct investment, so a subsidiary needs no government approval. The parent subscribes to shares, and the company reports the allotment in Form FC-GPR within 30 days. A private company needs at least two shareholders and two directors. One director must stay in India for at least 182 days in the financial year under section 149(3) of the Companies Act, 2013.

A branch office needs approval through an Authorised Dealer bank under FEMA 22(R)/2016-RB. The parent must meet the profit record and net worth tests in those regulations. A branch may render IT services and develop software. It cannot treat its services to head office as exports for GST today, as the GST section below explains. Our guide to the branch office route covers the approval.

An LLP can take foreign investment under the automatic route in sectors open to 100 percent foreign investment without performance conditions. IT services meet that test. An LLP pays 30 percent plus surcharge and cess and has no 22 percent option. It also cannot issue shares, which limits local equity plans.

A liaison office cannot earn income in India, so it cannot run a revenue earning centre. An employer of record (EOR) can employ staff before the entity exists. It is a bridge, and it carries its own PE risk. Our comparison of an employer of record and a subsidiary sets out when each fits.

Point	Private Limited subsidiary	Branch office	LLP	Employer of record
Approval	None for IT services (automatic route)	AD bank under FEMA 22(R)/2016-RB; RBI in listed cases	None for IT services (automatic route)	None for the parent
Legal status	Separate Indian company	Part of the foreign company	Separate Indian LLP	Staff employed by a third party
Income tax	22% under section 200, or 25.168% with surcharge and cess	35% plus surcharge and cess, as a foreign company	30% plus surcharge and cess	Parent's PE position decides
Services to parent as GST exports	Yes, if section 2(6) of the IGST Act is met	No while section 2(6)(v) stands	Yes, if section 2(6) is met	EOR invoices the parent
Equity for local staff	ESOPs possible; parent RSUs common	Parent RSUs only	No shares	Parent RSUs only
Liability of the parent	Limited to share capital	Unlimited; branch is the parent	Limited	Contractual
Typical use	Long term centre	Project or regulated cases	Rare for GCCs	First months before incorporation

Sources: section 200 of the Income Tax Act, 2025; section 2(6) of the IGST Act, 2017; FEMA 22(R)/2016-RB.

For a US group, our guide on setting up a subsidiary in India from the US walks through incorporation.

How is a GCC paid by its parent?

The parent pays under a written intercompany service agreement. The agreement pays the centre its operating costs plus a markup. Sections 161 to 173 of the Income Tax Act, 2025 require that price to be at arm's length. Most centres test it with operating profit on operating cost, compared with independent service companies.

The agreement should fix five points:

1. The services, described the way the work is done, not in general words.
2. The cost base, including salaries, rent, depreciation and any recharged share based pay.
3. The markup, and whether pass through costs carry it.
4. The billing cycle, with a year end true up to actual cost.
5. Who owns the work product and intellectual property.

We bill monthly on budgeted cost and true up in the last month of the financial year. A true up invoice raised after 31 March creates a mismatch between the books, the Form 48 report and the GST returns. Fix the true up date in the agreement.

Each invoice is also an export under FEMA. Regulation 5(1)(a) of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 gives nine months from the invoice date to realise the money. Regulation 3(2) requires an Export Declaration Form within 30 days after the invoice month ends. Both rules apply to invoices from 1 Oct 2026.

Transfer pricing brings four filings and records:

1. Records under section 171, kept each year. Rule 84 removes the detailed local file where international transactions do not exceed INR 1 crore.
2. Form 48 (old Form 3CEB), the accountant's report under section 172, due one month before the return due date under rule 85.
3. Form 56, the master file. Every constituent entity of an international group files Part A, according to the Form 56 guidance note. Part B applies where consolidated group revenue exceeds INR 500 crore and either international transactions exceed INR 50 crore or intangible transactions exceed INR 10 crore.
4. The return of income, due 30 Nov for a company that files Form 48, under section 263(1)(c).

The consequences are fixed in the Act. Section 428(d) charges a fee of INR 50,000 for a Form 48 delay of up to one month and INR 1,00,000 after that. Section 442(1) allows a penalty of 2 percent of each transaction's value for missing or wrong records. Section 442(2) sets INR 5,00,000 for failing to furnish the section 171(4) information.

Our guide to transfer pricing documentation covers the local file in detail.

If the parent is a US group, our guide to the India US trade deal explains its tariff terms and what it means for transfer pricing.

What is the transfer pricing safe harbour for a GCC?

Section 167 of the Income Tax Act, 2025 and rules 88 to 91 of the Income Tax Rules, 2026 provide it. For IT services, the department accepts an operating profit of at least 15.5 percent on operating expense. IT services include software development, IT enabled services, knowledge process outsourcing and software contract R&D. Operating revenue must not exceed INR 2,000 crore.

The Union Budget of 1 Feb 2026 announced the change. The PIB release says four categories are "clubbed under a single category Information Technology Services". It raised the threshold from INR 300 crore to INR 2,000 crore. It also promised an automated, rule driven approval.

Under rule 91, the option works as follows:

1. The company files Form 49 for the first tax year with the Director General of Income Tax (Systems).
2. The due date is the return due date under section 263(1)(c) for that year.
3. The department verifies eligibility electronically and decides within two months from the end of the month of filing.
4. A valid option runs for five consecutive tax years. The INR 2,000 crore test applies only to the first year.
5. For each of the next four years, the company files a statement of the transactions, amounts and margins by the return due date.
6. The company can withdraw only within six months after the end of the first tax year. After a withdrawal it cannot opt in again until the five years end.

Two points need care. First, rule 89(4) applies its table for a block of three tax years from 2026-27, and later blocks unless modified. A five year option therefore runs past the first block. The margin for tax years 2029-30 and 2030-31 depends on the rule then in force.

Second, the safe harbour does not remove the paperwork. Rule 89(6) keeps sections 171 and 172 in force for the transaction. So the centre still keeps records and files Form 48.

The margin fell, and the threshold rose. Rule 10TD of the Income Tax Rules, 1962 still governs FY 2025-26 (assessment year 2026-27), and its margins were higher.

Category	Rule 10TD(2A), up to AY 2026-27	Rule 89, from tax year 2026-27
Software development	17% up to INR 100 crore; 18% above INR 100 crore up to INR 300 crore	15.5% up to INR 2,000 crore
IT enabled services	17% up to INR 100 crore; 18% above INR 100 crore up to INR 300 crore	15.5% up to INR 2,000 crore
Knowledge process outsourcing	18%, 21% or 24%, by the share of employee cost in operating expense; up to INR 300 crore	15.5% up to INR 2,000 crore
Contract R&D relating to software	24% up to INR 300 crore	15.5% up to INR 2,000 crore
Form to opt in	Form 3CEFA	Form 49
Period of an option	Year by year	Five consecutive tax years

Sources: rule 10TD of the Income Tax Rules, 1962; rules 89 and 91 of the Income Tax Rules, 2026.

Our view: run the numbers both ways before you file Form 49. If a benchmark study supports a margin below 15.5 percent, the safe harbour costs tax every year for five years. If the centre does high value work, 15.5 percent buys certainty at a margin an officer may not challenge.

A centre outside the safe harbour can seek an advance pricing agreement under section 168. The Budget release of 1 Feb 2026 also announced a fast track unilateral APA for IT services, with a target of two years, extendable by six months at the taxpayer's request. Our safe harbour guide covers the other categories.

Should the GCC sit in an SEZ, an STPI unit or the domestic tariff area?

For most new centres we advise the domestic tariff area. New SEZ units no longer get an income tax holiday, so an SEZ mainly offers GST and customs relief on inputs in return for SEZ controls. STPI registration is optional, and since 1 Oct 2026 software exporters can file the export declaration with their bank.

Special Economic Zone. A unit needs a Letter of Approval from the Development Commissioner under section 15 of the Special Economic Zones Act, 2005. It must achieve positive net foreign exchange over five years under rule 53 of the SEZ Rules, 2006. Supplies to the unit are zero rated under section 16 of the IGST Act, 2017. The section 10AA deduction under the 1961 Act needed the unit to start work by 31 Mar 2020. A unit that starts later gets no deduction, whatever its approval date.

Rule 43A of the SEZ Rules, 2006 allows hybrid working. G.S.R. 824(E) of 7 Nov 2023 substituted the rule. It lets IT and IT enabled services units allow staff to work outside the zone, with no cap on headcount. The unit emails the Development Commissioner on or before the start date and keeps the staff list for verification. G.S.R. 786(E) of 26 Dec 2024 extended the facility to 31 Dec 2027.

Software Technology Park (STP) unit. An STP unit registers with Software Technology Parks of India under MeitY's scheme. It must export its output and can import capital goods free of customs duty. The income tax holiday under section 10A of the 1961 Act ended with assessment year 2011-12. Until 30 Sep 2026, software exporters filed SOFTEX through STPI or the SEZ.

Domestic tariff area. An ordinary office needs no export approval. The centre exports under a Letter of Undertaking and claims GST refunds on its input tax credit. It can also serve Indian group companies without SEZ conditions.

The 2026 export regulations took effect on 1 Oct 2026. Regulation 2 names the AD bank or STPI as the authority for software exports in the domestic tariff area. SEZ units file with their Development Commissioner. Our note on the end of SOFTEX covers the switch.

Point	Domestic tariff area	SEZ unit	STP unit
Approval	None beyond normal registrations	Letter of Approval from the Development Commissioner	STPI registration
Income tax holiday for a new unit	None	None for units starting after the section 10AA sunset	None; section 10A ended with AY 2011-12
GST on purchases	Charged; refund of credit on exports	Zero rated supplies to the unit	Charged; refund of credit on exports
Export declaration for software from 1 Oct 2026	EDF with the AD bank or STPI	EDF with the Development Commissioner	EDF with STPI or the AD bank
Export condition	None	Positive net foreign exchange over five years	Export obligation under the scheme
Office location	Any premises	Inside the notified zone	STPI or approved premises
Exit	Normal closure	Exit under SEZ rules, with duty paid on assets	Exit under the scheme

Sources: Special Economic Zones Act, 2005; SEZ Rules, 2006; FEMA 23(R)/2026-RB; Income Tax Act, 1961.

The batch note on setting up an SEZ unit covers SEZ approval in full.

Where the office sits is a separate choice, and our guide to the best city for a tech company compares Bengaluru, Hyderabad, Pune and Gurugram.

How does GST apply to a GCC's services to its parent?

A subsidiary's services to its foreign parent are an export when all five conditions in section 2(6) of the IGST Act, 2017 are met. The supplier is in India, the recipient and place of supply are outside India, and payment comes in convertible foreign exchange (or in Indian rupees where the RBI permits). The two must not be establishments of one person. Exports are zero rated.

The fifth condition does not catch a subsidiary. Circular No. 161/17/2021-GST of 20 Sep 2021 says an Indian company and its foreign parent are separate persons. An Indian branch of a foreign company is caught, because the branch and head office are establishments of one person.

That may change. On 8 Oct 2026 the 57th GST Council recommended omitting section 2(6)(v). The change needs an amendment to the IGST Act, so it is not law yet.

The intermediary rule changed earlier. Section 13(8)(b) of the IGST Act used to place an intermediary's service at the intermediary's location. A centre that arranged sales for the parent therefore paid GST. The GST Council's March 2026 newsletter says the Finance Act, 2026 omitted clause (b) on assent on 30 Mar 2026. The default rule now places such services at the recipient's location.

The centre exports in one of two ways:

1. Without tax, under a Letter of Undertaking filed in Form GST RFD-11 before the financial year starts. It then claims a refund of unused input tax credit in Form GST RFD-01.
2. With IGST paid, and a refund of that IGST.

Most centres use the first. The credit on rent, laptops and services builds up every month, so refunds are a cash flow item. The 57th GST Council also recommended system driven provisional refunds of 90 percent for zero rated supplies.

Flow	GST position	Rule
Subsidiary's services to the foreign parent, paid in foreign currency	Export, zero rated; supply under LUT	IGST Act, section 2(6) and section 16
Branch's services to its own head office	Not an export while section 2(6)(v) stands; omission recommended on 8 Oct 2026	IGST Act, section 2(6)(v); 57th GST Council
Sales support or business development for the parent	Place of supply follows the recipient from 30 Mar 2026	Finance Act, 2026, omission of section 13(8)(b)
Licence or management charge from the parent to the centre	Import of services; IGST under reverse charge, then input tax credit	IGST Act, section 5(3)
Services to an Indian group company	Domestic supply; GST charged	CGST Act, 2017

Our guides to GST on export of services and the reverse charge on imports from a parent cover each flow.

Does a GCC create a permanent establishment for its parent?

Control alone does not. Article 5(6) of the India US treaty says that control of one company by another does not by itself make either a PE of the other. Risk comes from conduct: parent staff working in India, or the centre concluding contracts for the parent.

Indian law reaches the parent through the business connection rule in section 9(9) of the Income Tax Act, 2025. Clause (b)(i)(A) covers an agent who habitually concludes contracts for the non resident. It also covers an agent who habitually plays the principal role leading to those contracts. A centre whose sales team negotiates the parent's deals with Indian or global clients can fall within it.

Treaties then decide how much India can tax. Watch four triggers:

1. Fixed place at the parent's disposal. If the parent's own business runs from the centre's premises, a fixed place PE can arise.
2. Service PE. Article 5(2)(l)(ii) of the India US treaty treats services performed in India for a related enterprise as a PE, with no day count. Included services taxed under Article 12 fall outside this rule.
3. Dependent agent. Centre staff who sign or settle contracts for the parent create the agent PE that treaties and section 9(9)(b) describe.
4. Deputed staff. Parent employees placed in India, who stay on the parent's payroll and answer to it, can create a service PE.

The Supreme Court tested a captive in its 2007 ruling in DIT (International Taxation) v Morgan Stanley and Co. Inc., (2007) 7 SCC 1, (2007) 292 ITR 416. It held that back office work in the Indian subsidiary did not create a fixed place PE. Deputed employees did create a service PE. Where the PE is paid at arm's length, the Court held that no further profit is attributable to it.

So we keep three controls in place. Centre staff do not sign or negotiate the parent's customer contracts. Visiting parent staff work on the centre's projects under its direction, and their cost goes through a secondment agreement. The centre's markup is documented at arm's length. Our guide to permanent establishment risk and the batch note on secondment of employees cover the detail.

How much tax does a GCC pay in India?

A subsidiary that opts for section 200 of the Income Tax Act, 2025 pays 22 percent. With the 10 percent surcharge and 4 percent cess, that is 25.168 percent. A branch is taxed as a foreign company at 35 percent plus surcharge and cess. Dividends to the parent then bear withholding at the treaty rate.

The section 200 option must be exercised on or before the return due date under section 263(1). It cannot be withdrawn. The company gives up most deductions, which rarely matters to a cost plus centre.

A foreign company pays a surcharge of 2 percent where income exceeds INR 1 crore, up to INR 10 crore, and 5 percent above that. Cess is 4 percent. A branch with INR 7.75 crore of profit therefore pays 37.128 percent.

Dividends from a subsidiary carry withholding at the treaty rate, with a TRC and Form 41. The rate is 15 percent for a US parent with at least 10 percent of voting stock. It is 10 percent for a UK, Dutch or French parent. Our note on dividends to a foreign parent covers the process.

The centre is also a tax deductor. It deducts tax on salaries under section 392 and files Form 138 each quarter. Payments to the parent for licences or recharges need tax at the section 393 rate or the treaty rate, with Forms 145 and 146 where they apply.

If the centre will run data centre services, our guide to the data centre tax holiday in India covers the incentives, rules and approvals.

How does a GCC hire and run payroll?

The centre hires on Indian contracts and runs payroll under the four labour codes in force since 21 Nov 2025. Provident fund applies from 20 employees and ESI from 10. Groups that need people before the company exists often use an employer of record first, then move staff to the subsidiary.

The codes changed wage structures. The Code on Wages, 2019 counts excluded allowances above half of total pay as wages. That raises PF, gratuity and leave encashment for many packages. Our note on the new labour codes works through the test.

PF is 12 percent of wages from each side. The wage ceiling rose to INR 25,000 a month from 17 Sep 2026 under S.O. 5109(E), as the labour ministry's release records. ESI is 3.25 percent from the employer and 0.75 percent from the employee, for staff on Code wages up to INR 21,000.

Four more registrations follow the first hire:

1. Shops and establishments registration under the law of the state where the office sits.
2. Professional tax registration in states that levy it, such as Karnataka and Maharashtra.
3. An Internal Committee under section 4 of the Sexual Harassment of Women at Workplace Act, 2013, once the office has 10 or more employees.
4. TAN for salary TDS, before the first payroll.

Foreign staff add more work. An expat on Indian payroll needs an employment visa, which MHA's Annex III ties to a gross salary above INR 16.25 lakh a year. Registration with the FRRO follows within 14 days of arrival for a visa longer than 180 days. Paragraph 9(5) of the EPF Scheme, 2026 makes an expat a PF member from the first day, unless a certificate of coverage applies.

Our guide to PF and ESI for expat staff covers the international worker rules. The batch notes on FRRO registration and social security agreements cover the expat filings.

What are the yearly compliances for a GCC?

A GCC subsidiary files under five domains each year. Company law needs an AGM, AOC-4 and MGT-7. FEMA needs the FLA return by 15 July. Income tax needs TDS, advance tax, Form 48 and the return by 30 Nov. GST needs monthly returns and a fresh LUT. Labour law needs monthly PF and ESI.

The table lists the core items for a subsidiary with a 31 March year end, grouped by law.

Domain	Filing	Due date	Source
Company law (ROC)	AGM	Within six months of the year end, so by 30 Sep	Companies Act, 2013, section 96
Company law (ROC)	AOC-4 (financial statements)	Within 30 days of the AGM	Section 137
Company law (ROC)	MGT-7 (annual return)	Within 60 days of the AGM	Section 92
Company law (ROC)	DPT-3	30 June	Companies (Acceptance of Deposits) Rules, 2014, rule 16
Company law (ROC)	Board meetings	Four a year, not more than 120 days apart	Section 173
FEMA	FC-GPR on each allotment	Within 30 days of allotment	FEMA 395/2019-RB, regulation 4(1)
FEMA	FLA return on FLAIR	15 July	RBI FAQ on the FLA return
Income tax	TDS deposit	7th of the next month; 30 April for March	Income Tax Rules, 2026, rule 218(2)
Income tax	Quarterly TDS statements (Forms 138, 140, 144)	31 Jul, 31 Oct, 31 Jan, 31 May	Rule 219
Income tax	Advance tax	15 Jun, 15 Sep, 15 Dec, 15 Mar	Section 408
Income tax	Form 48 and tax audit report	31 Oct	Rule 85; section 63
Income tax	Form 56 (master file)	30 Nov	Section 171; rule 123
Income tax	Return of income	30 Nov	Section 263(1)(c)
GST	GSTR-1 and GSTR-3B	11th and 20th of the next month	CGST Act, 2017
GST	GSTR-9 and GSTR-9C	31 December	CGST Act, section 44; CGST Rules, rule 80
GST	LUT in Form GST RFD-11	Before 1 April for the new year	CGST Rules, rule 96A
FEMA	EDF for services	Within 30 days after the invoice month	FEMA 23(R)/2026-RB, regulation 3(2)
Labour	PF ECR and ESI	15th of the next month	EPF Scheme, 2026, paragraphs 20(1) and 28(3)

Sources: as listed in each row.

For FY 2025-26 only, CBDT Circular No. 07/2026 of 28 Sep 2026 moved dates for companies without a transfer pricing report. Their tax audit report moved to 21 Oct 2026 and their return to 21 Nov 2026. Companies that file Form 3CEB kept 31 Oct 2026 for the audit reports and 30 Nov 2026 for the return. Our 2026-27 compliance calendar lists every date in order.

What changed in 2026

The rules for a GCC changed in several places in 2026. The income tax law and its forms changed on 1 Apr 2026, and the IT services safe harbour was rebuilt. GST, export reporting and PF rules also moved. The table lists each change with its instrument.

Date	Old rule	New rule	Instrument
1 Feb 2026	Separate IT, ITeS, KPO and software R&D categories; INR 300 crore limit	One IT services category at 15.5%; INR 2,000 crore limit; automated approval; five year option	Union Budget 2026, PIB release of 1 Feb 2026
30 Mar 2026	Intermediary services placed at the intermediary's location	Default place of supply rule applies	Finance Act, 2026, omission of section 13(8)(b) of the IGST Act
1 Apr 2026	Income Tax Act, 1961; sections 92 to 92F; Form 3CEB; rule 10TD and Form 3CEFA	Income Tax Act, 2025; sections 161 to 173; Form 48; rules 88 to 91 and Form 49	Act 30 of 2025; Income Tax Rules, 2026 (G.S.R. 198(E) of 20 Mar 2026)
29 Jun 2026	EPF Scheme, 1952	EPF Scheme, 2026; international worker rules in paragraphs 2, 9 and 10	G.S.R. 525(E)
17 Sep 2026	EPF wage ceiling INR 15,000 a month	INR 25,000 a month	S.O. 5109(E)
1 Oct 2026	SOFTEX for each software invoice, through STPI or the SEZ	One monthly EDF with the AD bank or STPI	FEMA 23(R)/2026-RB
8 Oct 2026	Branch services to head office not an export	Omission of section 2(6)(v) recommended; needs an IGST Act amendment	57th GST Council

Worked example

Scenario 1: safe harbour or benchmark. A US software group sets up IndiaCo Private Limited in Pune as a wholly owned subsidiary. For tax year 2026-27, IndiaCo's operating expense is INR 50,00,00,000. It opts for section 200. A benchmark study supports a 13 percent markup.

Line	Safe harbour at 15.5% (INR)	Benchmark at 13% (INR)
Operating expense	50,00,00,000	50,00,00,000
Markup (operating profit)	7,75,00,000	6,50,00,000
Invoice to the parent	57,75,00,000	56,50,00,000
Tax at 25.168%	1,95,05,200	1,63,59,200
Extra Indian tax under the safe harbour	31,46,000	Nil

The safe harbour costs INR 31,46,000 more tax a year. On the same cost base, that is INR 1,57,30,000 over the five year option. Against that, IndiaCo avoids a comparability dispute on the margin. It still files Form 48 under rule 89(6).

The parent's view matters too. A higher Indian markup raises the parent's service cost at home, and its own tax authority may test that markup as well. We run both sides before Form 49 is filed.

Scenario 2: subsidiary or branch. Take the same INR 7,75,00,000 of profit. The parent wants to compare a subsidiary that pays out all its profit with a branch.

Line	Subsidiary (INR)	Branch (INR)
Profit	7,75,00,000	7,75,00,000
Rate	25.168%	37.128% (35% plus 2% surcharge plus 4% cess)
Corporate tax	1,95,05,200	2,87,74,200
Profit after tax	5,79,94,800	4,87,25,800
Withholding on a full dividend at 15% (India US treaty)	86,99,220	Not applicable
Total Indian tax	2,82,04,420	2,87,74,200

Even with a full payout, the branch pays INR 5,69,780 more. If IndiaCo keeps its profit for growth, the gap that year is INR 92,69,000. The branch also cannot export to its own head office for GST today.

Common mistakes

1. Assuming cost plus 15 percent is inside the safe harbour. Rule 89 needs at least 15.5 percent from tax year 2026-27. Fix: reprice to 15.5 percent or support 15 percent with a benchmark study.
2. Filing Form 49 without modelling five years. The option binds for five tax years, and withdrawal closes six months after the first year. Fix: model costs and the parent's tax for the whole period.
3. Skipping Form 48 after opting in. Rule 89(6) keeps sections 171 and 172. Fix: diary Form 48 for 31 Oct every year.
4. Using a branch for a long term centre. Branch services to head office are not GST exports while section 2(6)(v) stands. Fix: use a subsidiary unless a regulator requires a branch.
5. Letting centre staff close the parent's deals. That conduct fits the agent rule in section 9(9)(b). Fix: keep contract authority with the parent and record it in the service agreement.
6. Raising the true up invoice after the year end. The books, Form 48 and GST returns then disagree. Fix: invoice the true up by 31 March.
7. Leaving export invoices unpaid. Regulation 5 of the 2026 export regulations gives nine months from the invoice date. Fix: track intercompany receivables monthly and ask the AD bank for an extension in time.
8. Treating expats like local staff for PF. Expats are international workers from day one. Fix: obtain a certificate of coverage before arrival or enrol them in PF.
9. Forgetting the LUT renewal. An LUT covers one financial year. Fix: file Form GST RFD-11 in March for the next year.

For a review of a planned GCC structure, our transfer pricing team can take the draft service agreement and cost budget.

Checklist

1. Map the work the centre will do against the categories in rule 88.
2. Choose the entity, and record why a branch or LLP was rejected.
3. Incorporate the Private Limited subsidiary and appoint a resident director.
4. Bring in share capital, allot shares within 60 days and file Form FC-GPR within 30 days of allotment.
5. Opt for section 200 by the first return due date if the 22 percent rate suits the group.
6. Sign the intercompany service agreement with the cost base, markup, billing cycle and IP terms.
7. Decide between the safe harbour and a benchmark study, and file Form 49 by the return due date if you opt in.
8. Register for GST and file the LUT in Form GST RFD-11.
9. Register shops and establishments, professional tax, PF and ESI as headcount requires.
10. Set PE controls on contract authority, visiting staff and secondments.
11. File one EDF a month for export invoices, and track realisation within nine months.
12. Keep transfer pricing records, and file Form 48 by 31 Oct and Form 56 by 30 Nov.
13. Hold the AGM by 30 Sep and file AOC-4 and MGT-7 within 30 and 60 days of it.
14. File the FLA return by 15 July each year.

Frequently Asked Questions

What is a global capability centre in India?+

A global capability centre is an Indian entity owned by a foreign group that does work for the group, such as engineering, finance operations or analytics. Indian law has no separate GCC licence. Most centres are wholly owned Private Limited subsidiaries under the Companies Act, 2013, and normal company, tax, FEMA and labour rules apply.

Is a Private Limited company or a branch better for a GCC?+

For most groups, a Private Limited subsidiary. It can pay 25.168 percent under section 200 of the Income Tax Act, 2025, against 37.128 percent for a branch with profit between INR 1 crore and INR 10 crore. Its services to the parent can also be GST exports, which a branch's services to head office cannot be today.

Does a GCC need government approval for foreign investment?+

Not for IT and IT enabled services. They fall under the automatic route, so the parent invests and the company files Form FC-GPR within 30 days of allotment. An investor from a country sharing a land border with India, or one with a beneficial owner there, needs government approval under Press Note 3 (2020 Series), whatever the sector.

What is the safe harbour margin for IT services from 2026?+

Rule 89 of the Income Tax Rules, 2026 accepts an operating profit of at least 15.5 percent on operating expense for IT services. That covers software development, IT enabled services, knowledge process outsourcing and software contract R&D. Operating revenue must not exceed INR 2,000 crore. It applies from tax year 2026-27.

How long does the IT services safe harbour option last?+

Five consecutive tax years under rule 91 of the Income Tax Rules, 2026. The company files Form 49 for the first year by the return due date under section 263(1)(c). The INR 2,000 crore limit is tested only in that first year. Withdrawal is allowed only within six months after the first year ends.

Does a GCC on safe harbour still file Form 48?+

Yes. Rule 89(6) of the Income Tax Rules, 2026 says sections 171 and 172 still apply. The centre keeps transfer pricing records and files Form 48 (old Form 3CEB) one month before the return due date. A late Form 48 attracts a fee of INR 50,000, rising to INR 1,00,000, under section 428(d).

What safe harbour applied to KPO centres before 2026?+

Rule 10TD(2A) of the Income Tax Rules, 1962 set 18, 21 or 24 percent for knowledge process outsourcing, by the share of employee cost in operating expense. The limit was INR 300 crore. Those margins still apply up to assessment year 2026-27. From tax year 2026-27, KPO falls in the single 15.5 percent IT services category.

Is GST payable on a GCC's invoice to its foreign parent?+

Not if the supply is an export under section 2(6) of the IGST Act, 2017. The parent must be outside India, the place of supply outside India and payment in convertible foreign exchange. The centre files a Letter of Undertaking in Form GST RFD-11 and invoices without IGST, then claims refunds of input tax credit.

Can an Indian branch export services to its foreign head office under GST?+

Not today. Section 2(6)(v) of the IGST Act excludes supplies between establishments of one person, and a branch and its head office are such establishments. On 8 Oct 2026 the 57th GST Council recommended omitting that clause. The change needs an amendment to the IGST Act before it applies.

Does an Indian subsidiary create a permanent establishment for its parent?+

Not by ownership alone. Article 5(6) of the India US treaty says control does not by itself make a subsidiary a PE. A PE can arise through conduct, such as parent staff using the centre as their place of business, or centre staff concluding contracts for the parent under section 9(9)(b).

Can parent employees work at the GCC without PE risk?+

They can, with controls. Under Article 5(2)(l)(ii) of the India US treaty, services performed in India for a related enterprise can create a service PE with no day count. Visiting staff should work on the centre's projects under its direction, with costs charged through a written secondment or service agreement.

Should a new GCC set up in an SEZ?+

Usually not for tax reasons. New SEZ units no longer get the section 10AA income tax holiday. An SEZ still offers zero rated supplies to the unit under section 16 of the IGST Act. In return, the unit needs a Letter of Approval, must achieve positive net foreign exchange over five years and works under SEZ controls.

Does a software GCC still need STPI after SOFTEX ended?+

No, not for the export declaration. From 1 Oct 2026, FEMA 23(R)/2026-RB replaced SOFTEX with one monthly Export Declaration Form. A software exporter in the domestic tariff area files it with its AD bank or STPI, within 30 days after the invoice month. SEZ units file with the Development Commissioner.

Do foreign employees at a GCC pay PF in India?+

Yes, in most cases. Paragraph 9(5) of the EPF Scheme, 2026 makes an international worker a member from the first day of employment. The exception is a worker from a country with a social security agreement who holds a certificate of coverage. Such a worker stays in the home scheme for the agreed period.

Can a group start with an employer of record before the subsidiary exists?+

Yes. An employer of record employs the staff and invoices the parent, so work can start before incorporation. It does not remove the parent's PE risk if the staff do the parent's core business in India. Most groups move staff to the subsidiary once it has a bank account, GST and PF registrations.

Sources

• Income Tax Department, Income Tax Rules, 2026, rule 88 (eligible international transactions for safe harbour), https://www.incometaxindia.gov.in/w/rule-88-3
• Income Tax Department, Income Tax Rules, 2026, rule 89 (safe harbour margins; block of three tax years from 2026-27), https://www.incometaxindia.gov.in/w/rule-89-3
• Income Tax Department, Income Tax Rules, 2026, rule 91 (procedure for IT services; Form 49; five tax years), https://www.incometaxindia.gov.in/w/rule-91-3
• Income Tax Department, Income Tax Rules, 1962, rule 10TD (safe harbour up to AY 2026-27), https://www.incometaxindia.gov.in/w/rule-10td
• Income Tax Department, Income Tax Rules, 1962, rule 10TE (Form 3CEFA; one year options under rule 10TD(3B)), https://www.incometaxindia.gov.in/w/rule-10te
• Income Tax Department, Income Tax Act, 1961, section 10AA (SEZ units; start before assessment year 2021-22), https://www.incometaxindia.gov.in/w/section-10aa
• Department of Commerce, G.S.R. 824(E), 7 Nov 2023 (rule 43A of the SEZ Rules, 2006, hybrid working), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/Notificaion%20of%2043A%20Work%20from%20Home%20%20no%2007_11_2023.pdf
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• Press Information Bureau, Threshold for availing safe harbour for IT services enhanced from Rs 300 crore to Rs 2000 crore, 1 Feb 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221428
• Income Tax Department, Income Tax Act, 2025, section 9 (business connection), https://www.incometaxindia.gov.in/w/section-9-1
• Income Tax Department, Income Tax Act, 2025, section 171 (records for international transactions), https://www.incometaxindia.gov.in/w/section-171-82
• Income Tax Department, Income Tax Act, 2025, section 200 (tax on income of certain domestic companies), https://www.incometaxindia.gov.in/w/section-200-77
• Income Tax Department, Income Tax Act, 2025, section 428 (fees for late audit and accountant's reports), https://www.incometaxindia.gov.in/w/section-428-6
• Income Tax Department, Income Tax Act, 2025, section 442 (penalty for transfer pricing records), https://www.incometaxindia.gov.in/w/section-442-5
• Income Tax Department, Guidance note on Form 56 (master file), https://www.incometaxindia.gov.in/documents/d/guest/fn-56
• Income Tax Department, India US Double Taxation Avoidance Agreement, https://www.incometaxindia.gov.in/w/usa-comprehensive-agreements-1
• Supreme Court of India, DIT (International Taxation) v Morgan Stanley and Co. Inc., 2007, reported at (2007) 7 SCC 1 and (2007) 292 ITR 416, https://www.sci.gov.in
• Central Board of Direct Taxes, Circular No. 07/2026, 28 Sep 2026, https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-09/Circular-7-2026.pdf
• GST Council Secretariat, Newsletter Issue 84, March 2026 (Finance Act, 2026 and section 13(8)(b) of the IGST Act), https://gstcouncil.gov.in/sites/default/files/2026-04/newsletter-march-2026.pdf
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