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India’s rapidly growing Global Capability Centres (GCCs) sector, which generated US$64.6 billion in revenue and employed 1.9 million professionals in FY2024, need reforms to the Safe Harbour regime in transfer pricing to ensure tax certainty and predictability, says a report by Nasscom.

The Safe Harbour regime, introduced in 2013, was designed to provide a simplified route for routine intra-group service providers to obtain certainty without prolonged litigation associated with transfer pricing audits. However, eligibility thresholds and prescribed margins have fallen out of sync with industry realities, limiting uptake among GCCs.

GCCs in India typically operate on a cost-plus model, bear limited risks and do not own or exploit intangibles locally, making them suitable candidates for Safe Harbour. However, many centres are excluded due to turnover thresholds and high presumptive margins that are above observed outcomes in the industry.

The Central Board of Direct Taxes has raised the ceiling for Safe Harbour from ₹200 crore to ₹300 crore, and a Working Group has been tasked with reviewing thresholds, margins and processes. This creates an opportunity to recalibrate Safe Harbour in a way that balances revenue protection with ease of doing business.

Safe Harbour rules today draw distinctions between IT services, business process outsourcing, knowledge process outsourcing, and contract R&D. In practice, GCCs rarely fit neatly into one of these categories. Most centres began with IT or business process support, but as mandates have expanded, they now deliver software engineering, finance operations, analytics, cybersecurity, product design, and other digital-first functions. These roles often cut across categories or combine elements of several. 

The difficulty for taxpayers is that Safe Harbour margins are prescribed by category. A centre providing advanced analytics in support of finance operations could be treated as IT-enabled services, or as knowledge process work, or even as research depending on interpretation. Where margins differ significantly across categories, this creates uncertainty rather than reducing it. The problem is not unique to GCCs, but it is more pronounced because GCCs tend to deliver multi-functional portfolios under one roof.

Another reason why GCCs are natural candidates for Safe Harbour is that their profitability does not vary with scale. Analysis of listed Indian IT and IT-enabled service companies shows that while some outliers exist at both ends, with a few firms reporting margins above 19% and some in single digits, both averages and medians converge around 14–15% irrespective of size. This pattern has been shared with the government in Nasscom’s earlier submissions and is well recognised in professional analyses of the sector. 

“For GCCs, the position is even clearer. Their captive, cost-plus design means they are insulated from the market exposures that create variation in entrepreneurial returns. Parent companies retain commercial risk and ownership of intangibles, while Indian centres are remunerated on a routine basis. As a result, margins for GCCs tend to remain in the same low-teens range, regardless of how large or complex the centre becomes,” the report added.

Proposed Reforms

To strengthen Safe Harbour as a credible and widely used option, especially for GCCs, the Nasscom report has proposed the following reforms:

• Realigning margins to the 14-15% range observed across the industry
• Simplifying service categories to reduce disputes arising from overlaps between IT, ITES, KPO, and R&D
• Removing misaligned proxies such as turnover thresholds and employee-cost ratios that do not correlate with profitability
• Enhancing predictability through multi-year elections, digitised compliance, and voluntary opt-in mechanisms

By providing certainty for routine, low-risk service providers, while leaving Advance Pricing Agreements (APAs) and regular assessment available for complex cases, India can foster a more stable and competitive environment for global investors. 

“Together, these measures would expand coverage, improve alignment with industry economics, reduce disputes, and simplify administration. They would help Safe Harbour achieve its intended purpose: to provide certainty for routine, low-risk service providers, while leaving APAs and regular scrutiny available for more complex or higher-risk cases”, the report noted.