Transfer Pricing in India: Safe Harbour, Cost Plus and Documentation
How a captive GCC is remunerated by its foreign parent, with the bare minimum compliance burden.
A captive GCC is, by definition, an associated enterprise of its foreign parent. Every rupee it invoices is an international related party transaction governed by sections 92 to 92F of the Income Tax Act, 1961, and the India Transfer Pricing Rules.
The cost plus model
Captive GCCs are almost always remunerated on Total Operating Cost plus a markup. The markup is the GCC’s taxable profit. The model is simple, defensible and widely accepted by Indian tax authorities.
Safe Harbour markup bands
The Safe Harbour Rules (Rule 10TD) let a GCC pre agree a markup with the tax department, eliminating audit risk.
- Software development services: 17 percent to 18 percent (depending on turnover band)
- Information Technology enabled services (back office, finance, support): 18 percent
- Knowledge Process Outsourcing (research, analytics, high end professional): 18 percent to 24 percent (skill weighted)
- Contract Research and Development in software: 24 percent
- Contract Research and Development in generic pharmaceuticals: 24 percent
Documentation thresholds
Maintain contemporaneous transfer pricing documentation where international related party transactions exceed INR 1 crore in a year. File Form 3CEB by 31 October. The Master File and Country by Country Report apply at group consolidated turnover above INR 500 crore and INR 6,400 crore respectively.
Advance Pricing Agreement (APA)
For larger GCCs or unusual structures, an APA locks in the transfer pricing methodology with the Central Board of Direct Taxes for 5 years (extendable by 4 rollback years). Average APA cycle: 24 to 36 months. Worth pursuing above 200 to 300 Full Time Equivalents.
Frequently asked questions
17 percent to 18 percent for routine software and back office work; 22 percent to 24 percent for high end research and analytics. Safe Harbour gives you certainty. If you forgo Safe Harbour, you can sometimes negotiate lower in benchmarking studies, but you carry audit risk.
No. Election is annual. Most mid sized GCCs elect Safe Harbour because the savings from lower markup are wiped out by audit and litigation cost.
More from the hub
Headline rates, the 22 percent concessional regime, Minimum Alternate Tax and what a Global Capability Centre actually pays.
Why a GCC is treated as an exporter, how to claim refunds and the Letter of Undertaking mechanism.
Inbound capital, External Commercial Borrowings, foreign currency accounts and dividend repatriation under the Foreign Exchange Management Act.
The step by step path from name reservation to operational entity, in 30 to 45 working days.
Provident Fund, Gratuity, the four Labour Codes and the real fully loaded cost of an India hire.
Need this mapped to your GCC plan?
Book a 30 minute call. We will translate the rules into your specific timeline, structure and cost plan.