Written by Tarun Arora
India is hub for more than 1,800 Global Capability Centres (GCCs) set up by multinational companies, specialising largely in Information Technology (IT) and IT-enabled service (ITeS). These GCCs collectively contribute to a substantial revenue of US$ 68 billion and provide employment to more than 2.16 million people in the country.
India has been a leader in the GCC sector, primarily due to its high- quality and cost-effective talent. The GCC market in India is expected to touch US$ 154-199 billion by 2030 with a total employment generation for 4 to 5 million individuals.
These GCCs have been significant contributors to India’s growth story in terms of GDP growth and employment generation. The growth of GCCs in India in the last two and a half decades has been significant:
| Timeline | No. of GCCs | Employment |
| Until 2010 | 700 | 4,00,000 |
| 2011 to 2015 | 1,000 | 7,50,000 |
| 2015-2023 | 1,580 | 16,60,000 |
| 2023-2025 | 1,800 | 21,60,000 |
Source – 1. Report by CII – Global Capability Centres, national Framework on GCCs dated July 2025
2. Report titled Indian GCC industry evolution – from outposts & captives to transformation hubs issued by Nasscom dated August 4, 2023.
Being integral to the multinational enterprises, these GCCs are governed by transfer pricing regulations. They primarily provide services to their overseas group companies and earn service revenue on an operating cost-plus mark-up model. However, the transfer pricing authorities have been carrying out aggressive audit of such companies, challenging primarily the cost base and/or the mark-up earned, triggering protracted litigation for the GCCs.
To reduce such disputes that result in prolonged litigation and to provide confidence to foreign investors, the Government introduced the Safe Harbour Rules (Rules) in 2013. Safe Harbours are pre-defined cost base with a pre-agreed mark-up provided by the government, along with other terms and conditions for being transfer pricing compliant. If a GCC satisfies those conditions and adopts the cost base and mark-up, Indian transfer pricing authorities typically accept the service revenue of the GCC. These Rules were revised few times over the years.
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However, the Rules could not achieve the intended objective of the Government. Since 2013, only a few GCCs have opted for these Rules to avoid transfer pricing litigation, due to the following inherent limitations:
- Restricted applicability- Safe Harbours are available to very small companies (having turnover up to Rs.300 cr), making them inaccessible to medium and large-scale enterprises.
- High mark-up – Safe Harbour rates have been on the higher range of the spectrum than general comparable industry benchmarks, rendering them commercially unviable for majority of the taxpayers (17% to 18% for IT/ITeS and 18% to 24% for KPOs)
- Eligibility for Safe Harbour – The India entity needs to bear insignificant business risk as per the regulations. The transfer pricing officer needs to verify these conditions to confirm the eligibility of the taxpayer for the Rules. These conditions no longer align with current business realities of GCCs. The landscape of GCCs operating in India has evolved significantly over the years and does not practically meet such stringent conditions.
Owing to these limitations, the Safe Harbour Rules may have missed their relevance for GCCs, leaving them to grapple with continued aggressive tax litigation or resort to other alternative dispute resolution mechanisms such as the Advance Pricing Agreements (APAs) and Mutual Agreement Procedure (MAP). This has had a cascading effect on APAs and MAPs resulting in large case pendency and significant delays in conclusion.
In the previous two Union Budgets (2024 and 2025), the Finance Minister announced plans to revamp the Safe Harbour Rules to make them more attractive and practical for taxpayers; it is understood that the government is actively working on revising these Rules.
However, to provide meaningful relief to taxpayers and to capitalise on the growth momentum of the GCCs’, the government needs to consider the following to make Safe Harbour Rules more meaningful and practical:
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- Re-evaluate the conditions of “eligible assessee” to cover the current functional profile of all GCCs.
- De-link eligibility of taxpayer with turnover, as there is no direct correlation between a GCC’s functional profile and turnover. Therefore, the Safe Harbour Rules should cover all GCCs irrespective of turnover threshold. Alternatively, if the government intends to restrict Safe Harbour to medium and small enterprises, the turnover should align to the turnover threshold of MSMEs which is currently at Rs. 500 cr.
- Align the Safe Harbour margins with industry benchmarks to make them commercially viable.
Indian GCCs have been facing tough competition from countries such as Mexico, Brazil, Chile, Argentina, the Philippines, Portugal, Poland, Thailand and Vietnam in terms of cost competitiveness. The Indian government should provide an effective Safe Harbour regime to GCCs to boost foreign investment and make India an attractive destination. The revised Safe Harbour Rules may be notified separately if not enacted as part of the Union Budget 2026.
The writer is Partner, Deloitte India
The views expressed in the article are personal views of the author.
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