India continues to strengthen its position as a preferred destination for Global In-House Centres (GICs), with businesses using India-based centres for technology, research and development, analytics, finance, operations, and other specialized functions.
For multinational companies operating a GIC in India, transfer pricing remains an important area of tax compliance. Transactions between an Indian GIC and its overseas associated enterprise must generally follow the arm’s length principle under India’s transfer pricing framework.
The Union Budget 2026 introduced important changes to the Safe Harbour Rules for certain international transactions, particularly those involving IT and technology services. These changes can have practical implications for qualifying GICs operating in India.
What Is Transfer Pricing for a GIC in India?
A GIC typically operates as an extension of its multinational parent company. The Indian entity may provide technology development, IT-enabled services, knowledge processing, research and development, analytics, finance, or other support services to its overseas group entities.
Because the Indian GIC and its overseas parent or group companies are generally associated enterprises, transactions between them can fall within India’s transfer pricing provisions.
Examples may include:
- IT and software development services
- IT-enabled services
- Knowledge process outsourcing
- Contract R&D services
- Management and support services
- Intra-group financing
- Corporate guarantees
- Other cross-border transactions between associated enterprises
India’s transfer pricing rules require applicable international transactions to be priced according to the arm’s length principle.
What Changed After Union Budget 2026?
One of the significant developments in Budget 2026 is the restructuring of the Safe Harbour framework for qualifying IT services.
Previously, different categories such as software development services, IT-enabled services, knowledge process outsourcing, and certain contract R&D services were treated separately.
The 2026 reforms consolidate several technology-related services into a broader “Information Technology Services” category.
For qualifying transactions, the revised framework provides a common 15.5% operating profit margin on operating expenses.
The eligibility threshold has also been increased from ₹300 crore to ₹2,000 crore for the relevant IT services category.
What Does the 15.5% Safe Harbour Margin Mean?
Under the new rules, an eligible taxpayer providing qualifying Information Technology Services can use the Safe Harbour mechanism where the prescribed conditions are satisfied.
For transactions with aggregate operating revenue not exceeding ₹2,000 crore, the notified rules specify an operating profit margin of at least 15.5% in relation to operating expenses for the eligible IT services transaction.
This does not mean that every GIC in India can automatically apply a 15.5% margin.
Eligibility depends on the nature of the services, the transaction, the taxpayer, associated-enterprise relationship, and other prescribed conditions.
Therefore, GICs should evaluate their actual functional profile before relying on the Safe Harbour provisions.
Why Is This Important for GICs?
Many GICs operate under a captive or limited-risk service-provider model.
The Indian centre may provide services to its overseas parent while being compensated under an agreed transfer-pricing arrangement.
For such businesses, determining an appropriate arm’s length remuneration is an important part of the tax framework.
The revised Safe Harbour rules may provide greater certainty for qualifying technology-focused GICs and potentially simplify the transfer-pricing process.
However, businesses should not treat the Safe Harbour margin as a universal benchmark for every GIC.
The functions performed, assets used, risks assumed, contractual terms, and actual conduct of the parties remain important.
Transfer Pricing Documentation Still Matters
Even with Safe Harbour provisions, GICs need to maintain appropriate documentation and demonstrate that their transactions meet the applicable requirements.
A GIC should maintain a clear understanding of:
Functions: What activities does the Indian entity actually perform?
Assets: What technology, intellectual property, infrastructure, and other assets are used?
Risks: Which entity bears operational, market, financial, and other relevant risks?
Intercompany Agreement: What services are being provided to the overseas associated enterprise?
Pricing Methodology: How has the remuneration been determined?
A strong functional analysis can help establish whether the transfer-pricing approach accurately reflects the GIC’s actual business model.
Safe Harbour vs. Regular Transfer Pricing Analysis
GICs should understand that Safe Harbour is an optional framework for eligible transactions, not a replacement for India’s broader transfer-pricing principles.
Where the Safe Harbour provisions are not applicable or are not chosen, the arm’s length price generally needs to be determined under the applicable transfer-pricing provisions and methods.
India’s transfer pricing framework provides multiple methods for determining the arm’s length price, and comparability analysis can remain important depending on the transaction and facts.
APA Options for GICs
For larger or more complex GIC structures, an Advance Pricing Agreement (APA) can provide another route toward greater transfer-pricing certainty.
The 2026 Budget also proposed reforms aimed at accelerating the unilateral APA process for IT services, with an objective of concluding such agreements within two years, subject to the applicable framework.
CBDT subsequently reported that it signed 219 APAs during FY 2025–26, including 84 bilateral APAs, taking the cumulative number of APAs since inception beyond 1,000.
For GICs with significant cross-border transactions or complex operating models, an APA may therefore be worth evaluating alongside the Safe Harbour option.
What Should GICs Do After Budget 2026?
GIC leadership and tax teams should review their existing transfer-pricing arrangements rather than simply applying the new 15.5% figure.
A practical review can include:
- Review the GIC’s functional profile.
- Identify all international transactions with associated enterprises.
- Determine whether the services qualify under the revised IT Services category.
- Assess eligibility for the new Safe Harbour framework.
- Review the existing cost-plus or other transfer-pricing methodology.
- Evaluate whether Safe Harbour or an APA is more appropriate.
- Update intercompany agreements and supporting documentation where required.
- Maintain robust transfer-pricing records and contemporaneous evidence.
How GIC in India Can Help Businesses Navigate the GIC Ecosystem
Setting up and operating a GIC involves much more than selecting an office location and hiring employees.
Businesses need to consider entity structuring, compliance, talent, finance, technology, operations, governance, and ongoing management.
At GIC in India, we help businesses understand and navigate the different elements involved in establishing and scaling their India operations.
From GIC setup and operational support to talent and back-office requirements, having the right structure from the beginning can help businesses build a more efficient and scalable India centre.
Conclusion
The Union Budget 2026 has introduced meaningful changes to India’s transfer-pricing Safe Harbour framework for qualifying IT services.
The consolidation of certain technology services, the 15.5% Safe Harbour margin, and the increase of the eligibility threshold to ₹2,000 crore may provide greater certainty and potentially simplify compliance for eligible GICs.
However, the right transfer-pricing approach depends on each GIC’s specific functions, risks, transactions, and operating structure.
For multinational companies planning to set up a GIC in India or expand an existing centre, understanding these changes can be an important part of building a compliant and scalable India strategy.
GIC in India — Build. Scale. Operate. Grow.
Note: Transfer-pricing rules can be complex and fact-specific. This article is for general informational purposes and should not be treated as tax or legal advice. Businesses should consult qualified tax professionals before making transfer-pricing decisions.
