India’s notified Income-tax Rules, 2026 introduce a common safe-harbour framework for eligible information technology services. For an eligible Indian Global Capability Centre (GCC), the starting point is to identify the actual covered transactions, test eligibility and model the margin on the prescribed operating expense base. A GCC may carry out several functions under one corporate entity, and each stream can have a different transfer-pricing profile.
1. Apply the notified eligibility and margin tests
The notified rules specify an operating profit margin of at least 15.5% of operating expense for eligible IT services where aggregate operating revenue for the relevant transaction category does not exceed ₹2,000 crore, with the threshold tested in the first of the five consecutive Tax Years for a valid IT-services election. The rules specify Form 49 for that election and tie filing to the return due date under section 263(1)(c) for the first year. Check the notified text, current amendments and portal instructions before electing. Preserve the computation and receipt alongside the return file.
For illustration, a qualifying segment with ₹100 crore in operating expenses would require at least ₹15.5 crore in operating profit, implying ₹115.5 crore in operating revenue in a simple cost-plus model. Identify adjustments to operating revenue and expenses under the rules before comparing the actual return numbers with the illustration. Test expense classification, pass-through costs and allocation of shared teams before signing off.
2. Segment the centre by what it actually does
Map development, support, analytics, contract R&D and strategic or product ownership functions against intercompany agreements, delivery records and decision rights. Record which entity controls risks, funds projects and makes decisions about intellectual property. Where evidence indicates that the Indian centre makes significant product decisions or contributes to intangibles, review whether the activity fits the elected category and remuneration model. Capture disagreements between contract language and observed conduct and resolve them before making the election.
3. Compare safe harbour with an APA and ordinary benchmarking
Run a five-year forecast that compares the safe-harbour margin with a documented arm’s-length outcome under ordinary benchmarking. Add the expected Indian tax cost, the cost of maintaining each approach, audit exposure and potential double taxation. A domestic safe harbour determines treatment within its scope in India. The other jurisdiction can still assess the counterparty’s position independently. For material recurring transactions where both countries’ treatment matters, assess the relevant bilateral APA or treaty mutual agreement procedure, including eligibility and timing.
4. Separate the EU–India FTA from direct tax treaty analysis
EU–India FTA negotiations concluded on 27 January 2026. In September 2026 the European Commission put forward proposals to the Council for signature and conclusion. The published text says entry into force depends on completion of the parties’ internal legal procedures. Treat trade access and customs questions as a separate workstream from direct tax treaty matters such as permanent establishment, withholding, associated enterprise adjustments and double-tax relief. Verify the status and scope of each instrument before relying on a benefit.
5. Prepare for data-driven scrutiny
The Budget described automated, rule-driven acceptance for the IT-services safe harbour. That process is distinct from the criteria authorities may use for risk selection. Reconcile the local file and applicable related-party reporting to the trial balance, signed accounts, intercompany invoices and relevant group disclosures. Preserve cost-pool versions, allocation keys, margin true-ups, exchange rates and approvals. A reviewer should be able to reproduce the claimed margin and identify the evidence behind each material adjustment.
Primary references
- Gazette text of the notified Income-tax Rules, 2026
- Union Budget release on IT-services safe harbour and APAs
- European Commission timeline for EU–India trade relations
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