India’s Union Budget 2026–27 has introduced significant transfer pricing reforms aimed at strengthening the country’s attractiveness as a destination for Global Capability Centers (GCCs). By expanding the safe harbour framework, simplifying margins, and accelerating approval mechanisms, the government seeks to enhance tax certainty and encourage greater multinational investment into India’s GCC ecosystem.
Key Transfer Pricing Reforms Impacting GCCs
A central reform in the Budget is the expansion of the safe harbour eligibility threshold from ₹300 crore to ₹2,000 crore. This change enables a much larger segment of GCCs to access a predictable and simplified tax framework. In parallel, the government has introduced a uniform transfer pricing margin of 15.5% across IT services, including software development, IT-enabled services, knowledge process outsourcing, and contract research and development. This replaces the earlier margin range of 17% to 24%, which had frequently resulted in tax disputes.
To further improve predictability, approvals under the safe harbour regime will now be automated through a rules-based system. For entities that exceed the revised threshold, the Advance Pricing Agreement (APA) mechanism will be fast-tracked, with the government targeting the conclusion of APAs within two years.
Strengthening India’s Competitive Position for GCCs
Transfer pricing uncertainty has historically been a key concern for multinational GCCs operating in India. Variations in margin interpretations and a restrictive safe harbour framework often led to prolonged disputes. The Budget 2026–27 reforms directly address these challenges by offering greater fiscal clarity and alignment with global benchmarks.
As countries across the Asia-Pacific region continue to enhance their digital and investment frameworks, India’s simplified and expanded safe harbour regime provides a distinct competitive advantage. With over 1,700 GCCs already operating in the country and contributing significantly to services exports, these reforms are expected to further accelerate GCC growth and investment.
Broader Economic and Sectoral Impact
The transfer pricing reforms align with India’s broader objective of positioning itself as a global hub for technology, data, and innovation. This objective is reinforced by complementary measures, including a tax holiday for data centers, creating a more comprehensive incentive environment for technology-driven foreign direct investment.
The Economic Survey 2025–26 highlighted the foundational role GCCs play in India’s IT sector growth and services trade surplus. By reducing compliance complexity and litigation risk, the government aims to attract higher-value mandates, promote innovation-led service exports, and drive employment in specialised technology and knowledge domains.
Conclusion
The Union Budget 2026–27 marks a strategic recalibration of India’s approach to Global Capability Centers. Through enhanced tax certainty, streamlined processes, and alignment with evolving GCC models, the reforms signal India’s intent to move from scale-led growth toward capability-driven and innovation-focused GCC expansion.
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