The framework
Tax year 2026-27 is the first year under the Income-tax Act 2025, which replaced the 1961 Act from 1 April 2026. Section numbers below refer to the new Act. See Income-tax Act 2025.
Corporate tax on the centre
| Structure | Rate | Effective rate |
|---|---|---|
| Indian subsidiary, concessional regime (s.200) | 22% + 10% surcharge + 4% cess | 25.168% at any income level; no MAT; most deductions forgone |
| Indian subsidiary, normal regime | 30%, or 25% if FY2024-25 turnover was up to ₹400 crore | Up to 34.944%; MAT at 14% of book profit (s.206) |
| Foreign company branch or PE | 35% plus surcharge and cess | 36.40% (income up to ₹1 crore), 37.128% (₹1–10 crore), 38.22% (above ₹10 crore) |
Budget 2026-27 left corporate rates unchanged; only MAT was cut, from 15% to 14%, and it became a final tax with no new credit. A GCC should compare the concessional regime with the normal regime plus any deductions it would keep. See corporate tax.
Transfer pricing: cost-plus and the safe harbour
A captive usually charges its parent cost plus a margin under an inter-company services agreement. The margin must be at arm’s length.
The 15.5% safe harbour. Budget 2026-27 introduced a single safe harbour for IT services:
- 15.5% operating margin on cost;
- covers software development, ITeS, KPO and contract R&D;
- eligibility threshold of ₹2,000 crore of revenue, raised from ₹300 crore;
- approval through an automated process;
- once chosen, the option can run for five years.
Status as of 1 October 2026: rules notified in the Income-tax Rules 2026.
The fast-track APA. Unilateral advance pricing agreements for IT services are to be fast-tracked, with the aim of concluding them within two years, extendable by six months. Associated enterprises may file modified returns after an APA is signed. Status: announced 1 February 2026.
Safe harbour or APA
| Factor | Safe harbour | APA |
|---|---|---|
| Certainty | Fixed margin for up to five years once chosen | Agreed margin and method for the APA term |
| Margin | Fixed 15.5% on cost | Negotiated; may be lower or higher |
| Fit | Routine cost-plus software, ITeS, KPO and contract R&D | Higher-value R&D, AI or mixed functions |
| Time | Automated approval | Target two years, extendable by six months |
| Size limit | Revenue up to ₹2,000 crore | None stated |
The safe harbour suits routine cost-plus centres. Higher-value R&D or AI work may attract a higher margin claim from the tax authority, so such centres should benchmark annually or seek an APA.
Compliance. The transfer-pricing accountant’s report (s.172) is still required. The Finance Act 2026 replaced the penalty for not furnishing it with a fee (s.428).
Data-centre services. A 15% cost-plus safe harbour for related-party data-centre services was announced in Budget 2026-27. Confirm it has been notified before relying on it.
Permanent establishment risk
The parent’s exposure is separate from the centre’s own tax. In Hyatt International (25 July 2025) the Supreme Court found a fixed place PE under Article 5(1) of the India–UAE treaty where the foreign group, through a strategic oversight agreement, controlled the Indian operations.
For a GCC, the practical points are:
- keep decision rights for the Indian business with the Indian entity, and document them;
- document the roles of secondees and expatriates, and who they report to;
- review managed-team and employer-of-record arrangements where the parent directs staff;
- remember that PE income is taxed at 36.40–38.22% effective.
A foreign company can also have a significant economic presence without an office: payments from India above ₹2 crore a year, or interaction with 300,000 or more users in India.
Treaty access
Treaty relief is open to challenge. In Tiger Global (Supreme Court, January 2026) GAAR denied Mauritius treaty relief, and a tax residency certificate did not bar scrutiny. The principal purpose test (CBDT Circular 1/2025) applies prospectively. Holding structures above the GCC should be reviewed with this in mind.
Withholding on payments to the parent
| Payment | Domestic rate | Note |
|---|---|---|
| Dividends to a non-resident parent | 20% plus surcharge and cess | Treaties can reduce it |
| Royalties and fees for technical services to a foreign company | 20% plus surcharge and cess | Check the applicable treaty |
| Buy-backs | Taxed as capital gains in the shareholder’s hands from 1 Apr 2026 | On Companies Act s.68 buy-backs, promoter additional tax takes a foreign parent to 30%, before surcharge and cess |
See withholding and capital gains.
GST on services to the parent
GST has two main rates, 5% and 18%, plus 40% for a few items, from 22 September 2025. The Finance Act 2026 (s.157) removed the special place-of-supply rule for intermediary services from the IGST Act. These services now follow the general rule and can qualify as exports.
GIFT IFSC
A unit in GIFT IFSC, including a Global In-House Centre registered under the IFSCA 2025 regulations, can claim a 100% deduction of eligible income for 20 consecutive years out of 25 (s.147). Budget 2026-27 proposed a 15% rate on IFSC business income after the holiday; the Finance Act 2026 did not enact it.
What to check next
- Test whether the centre’s functions fall within software, ITeS, KPO or contract R&D before electing the safe harbour.
- For R&D or AI-heavy centres, benchmark the margin annually and consider a fast-track APA.
- Document decision rights, reporting lines and secondee roles to manage PE risk after Hyatt.
- Review the place-of-supply position for any intermediary-type services after the Finance Act 2026 change.
- Diary the transfer-pricing accountant’s report; a fee now applies if it is not furnished.