The future of Global Capability Centers in India: Policy shifts

India’s GCC sector is benefitting from tax reforms, safe harbour rules, GST clarity and incentives driving growth, innovation and global competitiveness.

Related topics

The EY India podcast episode delves into the evolving landscape of Global Capability Centers (GCCs) in India, which have become vital hubs for technology, innovation, and global business operations. With over 1,800 centers employing more than two million professionals, GCCs have transitioned from being cost centers to strategic entities driving high-value work and global roles.

The discussion focuses on recent reforms aimed at enhancing tax and regulatory certainty for GCCs. Key changes include safe harbour rules that now offer a consistent margin of 15.5%, removing previous ambiguities related to value chain positioning and encouraging GCCs to bring high-value processes to India. The advanced pricing arrangement (APA) process has been streamlined with a reduced timeline of 24-30 months, enabling faster dispute resolution.

GST reforms addressing the intermediary classification issue, which had caused significant litigation and cash flow issues are also covered. Additionally, a tax holiday for foreign service providers operating data centers in India has been extended until 2047, promoting substantial investments in digital infrastructure.

Experts advise GCCs to prioritize scalability, tax identity, regulatory clarity, and alignment between tax operations and contracts when setting up or expanding operations in India. They also emphasize the importance of selecting states that offer optimal tax incentives and skilled manpower.

With extended tax holidays in GIFT City and comprehensive reforms, India is positioned as a premier destination for GCCs, fostering growth, innovation, and global competitiveness in the sector.

Key takeaways

GCCs have evolved into strategic hubs driving technology and innovation in India.
Safe harbour rules now provide consistent tax margins, reducing uncertainty.
APA timelines have been shortened for quicker dispute resolution.
GST reforms address intermediary classification issues, easing litigation and cash flow.
Tax holidays for data centers and GCCs in GIFT City have been extended, encouraging investment.
GCCs should focus on scalability, tax identity, regulatory clarity, and contract alignment.
State-level incentives vary; careful location selection is crucial for maximizing benefits.
India is positioned as a favorable destination for GCC growth and global competitiveness.

Global Capability Centers are no longer just cost centres; they are driving technology advancement, innovation, and research in India. Budget 2026 addresses long-standing tax and regulatory concerns, providing much-needed clarity and certainty for GCCs to thrive.

Ritika Loganey Gupta

GCC Tax Leader and Partner, EY India

The new safe harbour rules mark a significant shift. It no longer matters where you are on the value chain; consistent margins and tax certainty are now assured. This change encourages GCCs to bring in high-value processes without fear of tax disputes.

Vijay Iyer

National Leader and Partner – Transfer Pricing, EY India

The intermediary issue has been a major challenge for GCCs, impacting cash flow and causing prolonged litigation. The recent GST reforms and Finance Bill 2026 promise to resolve these issues, offering much-needed relief and fostering a more welcoming environment for GCCs.

Nikhil Suri

Tax Partner, EY India

For your convenience, a full text transcript of this podcast is available on the link below:

Ritika Loganey Gupta

Hello everyone and welcome to EY India podcast series. Today we are going to talk about Global Capability Centers or GCCs, and the impact that Budget 2026 has had on the GCC sector.

My name is Ritika Loganey Gupta, and I am the GCC sector Tax Leader in EY India. In today's podcast, I am also going to be joined by my colleagues - Vijay Iyer, who is the National Leader for Transfer Pricing, and Nikhil Suri, who is a Partner in the Indirect Tax space, focusing on the GCC sector.

Global Capability Centers, or GCCs as we call them, are backbone of the Indian economic and technology space. Today, as we speak, India is home to 1,800 GCCs that employ over two million people. Every year, we are adding 100 GCCs within the India economic space.

Historically, GCCs were always considered cost centers and back-office support centers. But over a period, the space within which GCCs operate in India has changed. They are working on technological advancement, advanced analytics, innovation, research and development, along with supporting their global parent companies. GCCs are also moving up the value chain as they have now found a seat in the global organization. A lot of global roles are moving to India.

There is a lot happening within the sector but one of the things that emerges in discussions when we speak to our GCC clients is: what is the tax and regulatory certainty that India is providing? Some of these issues have been longstanding and always become a point of discussion when companies are planning to set up operations in India. Budget 2026 has taken care of a lot of these issues that have been impacting the sector, ranging from safe harbour amendments to Advance Pricing Agreements (APA), and GST amendments. Today, we are going to unpack all of these changes that Budget 2026 provided for.

Vijay, tell us what has truly changed in the safe harbour pricing rules.

Vijay Iyer

There is tremendous change. Over the last 20 years, the prevailing concept was that if you are going up the value chain, you will earn more profits. And there was always a dispute as to whether you are doing high-end or low-end work. High-end was seen as a negative connotation, and meant higher margins. Taxpayers were trying to cut down on the amount of work they moved into India because it meant higher profits and thus higher taxes in India.

Now, it does not matter where you are on the value chain, we (the government) will give you a consistent price and a consistent margin and your tax is certain, which is a huge change. So, the story now is that you (GCC) bring in all your processes to India, bring in the high value-add work and we will give you the paraphernalia to work on this, and not trouble you with taxes. There is a safe harbour margin of 15.5%, and thereafter no questions will be asked.

Of course, there is a threshold of INR2,000 crore for the size of the GCC, but I think that takes care of over 80% of GCCs in the country. A large part of those interested can now bring in their processes to go up the value chain, help create the ecosystem and have tax certainty as well.

There are still some checks and balances, though. You cannot run the entire process end-to-end from India. India should remain the back office, as they call it. So, there is someone who is controlling and supervising these decisions, someone who is managing the flow of transactions, and the work is getting offloaded to India to perform a part of the overall puzzle and not the whole of it. That is a check and balance there. But to that extent, once you are following most of the multinational processes, you will be eligible for ‘safe harbour. That really helps you to manage your tax function very well.

Ritika Loganey Gupta

So, safe harbour does away with the big controversy that has been impacting the sector around what margins they should earn for offshoring work to India, right?

Vijay Iyer

Yes, exactly.

Ritika Loganey Gupta

The other change, or the other route the GCCs could take is on the advanced pricing arrangements. There has been some change on the APA provisions as well. What are your thoughts on that, Vijay?

Vijay Iyer

A large population (of GCCs) may fall out of the APA regime now because you have 15.5%, while APA will be happening at 17% or 17.5%. So, there is already a big concession, good case for taxpayers to take up the safe harbour and not go for APAs. But there may be people who may choose to do a bilateral if they do not want to dispute in the other country. To that extent, there may be APAs. Some of the larger companies may have to do APAs, the non-GCC sector and some of the IT companies also need APA support.

There is a timeline that has been put. For IT/ITES businesses, there is a two-year timeline within which the APA will get completed. It can be extended by a further period of six months. During these 24-30 months, companies will get their APAs finalized, which was earlier taking four to five years. I admit that during some of the recent cases, the APA authorities have been extremely quick and wrapped up cases within 12 months. But yes, a 30-month timeline is a good time to finish these cases, including pending cases as well as the ones that are coming in now. The inventory may go down, but the speed of closure is also there; it is a win-win for the taxpayer.

Ritika Loganey Gupta

The other issue that has been bothering GCC players in the country is GST. How should services be classified - exporter services or intermediary? I know from practical experience and with discussions with tax directors that millions of dollars are stuck either as refunds, and a lot of time and effort is also going into litigation. Nikhil Suri, what has changed in Budget 2026?

Nikhil Suri

You are right. The intermediary issue was impacting the entire services industry. It was one of the biggest issues that the services sector has been facing till date, including the GCCs. As you rightly pointed out, for the GCCs, the issue was heavily impacting cash flows, translating into elongated litigation, and therefore impacting their work. The messaging going out of India was unwelcoming, in that sense.

To give you a quick background about the intermediary litigation, intermediary as a concept says that if a taxpayer is treated as an intermediary by the tax authorities, then their services, even if provided to a recipient outside of India, does not qualify as exports. The provision was typically meant for agents and brokers across different industry segments. The whole concept was also extended to GCCs, which also led to them facing litigation across the country. They had to travel all the way to high courts to get settlement of this issue. But across various jurisdictions in India, this issue continued to surface and therefore bothered the GCCs.

Not only did it result in an impact on their output liability, but the bigger impact was on the refunds. As exporters of services, GCCs are allowed to claim a refund of the input GST paid on their procurements. And this litigation was impacting their entire cash flow in a big way, which was locked in litigation for many years.

With the 56^th GST Council meeting announcement in September 2025, the intention was clearly articulated by the tax authorities that they want to get away with this intermediary concept and therefore minimize the litigation for GCCs as well as the services sector. This decision or recommendation of the council has now translated into the Finance Bill, 2026 and is awaiting ratification. Once the bill is ratified, it will be a big relief for GCCs and the entire services sector.

Ritika Loganey Gupta

The other big change which has really happened is around cloud and digital infrastructure and data centers. We all know that GCCs today are heavily dependent on cloud and digital infrastructure. And they also operate data centers in India. The Budget has now given a tax holiday to foreign service providers who operate using India data centers, which extends up to 2047. And that's a big change that has happened. Vijay, your thoughts on that and how does that impact the GCC sector?

Vijay Iyer

It is an add-on, because it is a parallel business that most GCCs want to get into. So, they will create their own data centers and to acquire critical mass, these centers will serve customers outside of India as well. You will not be able to economically run the data center with India-only data. You need global data to come as well, and this exemption now permits you to use the India-based data center for global data. It is the next level of change that was needed.

There were data centers that were used for global data, but there was always a question on taxability, which held back investments in data centers. But now, India can become a hub for data centers, if they are used partly for India, partly for global, but overall, on a large scale. We are looking at multibillion-dollar investments coming into India. There was another element - how much should India charge for the use of the data center? There is again, safe harbour, which says that you earn a 15% margin on the data center cost, and that should be enough. The remaining profits earned by the foreign company will not be taxable in India.

In my view, the 15% tax is high and needs further recalibration because it is a highly capital-intensive business. A 15% margin is on the higher side for a contract services or contract manufacturing capital =-intensive business. So, the number should be in single digit. We will see how that evolves, but at least we have a cap now. Some people in the (tax) department believe that 15% is the highest that you can look at. Our guess is that we should be looking at something much lower; that is something expected to evolve soon. It is not like the 15.5% safe harbour for the other services. Since this is slightly on the higher side, we will have to see how the government redoes these numbers.

Ritika Loganey Gupta

Nikhil, any interplay with GST for data centers?

Nikhil Suri

The data centers are only going to increase their users, especially with AI around the corner. The requirement for data centers will only increase. With the government encouraging more data centers in India through these tax and regulatory measures, it will be a big boost for the economy. Even from a GST perspective, it will generate greater revenues for the Government in India.

Ritika Loganey Gupta

From a practical perspective, what are we going to advise clients who are planning to set up GCCs in India or looking at expanding existing GCCs in India? I will go first and tell you what we are seeing in the GCC ecosystem.

The first decision point should be whether the GCC is looking at scalability, capability, or both. The second important aspect is tax and regulatory certainty – this is important and those planning to set up operations need to look at. The third important aspect is there should be complete alignment between tax, operations and contracts because if these three are not together, there will be issues in doing business in India.

Vijay, what are your thoughts on what GCCs should be looking at from a transfer pricing perspective?

Vijay Iyer

They need to have their Standard Operating Procedures (SOPs) well documented. Certainly, it is the best time to come in and do business; there is no doubt about that. But as I mentioned, there are some checks and balances, so you should keep your documentation for any kind of examination. You will have to prove that what is happening in India is part of an overall larger super system, and India part is a subsystem of that. What is the flow of information coming in? What is the process being run in India and what is going out? So, that SOP is good to have. You should have the right control and supervision in the country. You should have the right contracts, as you rightly said. If you do the homework properly, you will be protected from any adverse tax consequences. You can get covered under the safe harbour and things should help you to grow substantially over a period of time.

Ritika Loganey Gupta

Great. Nikhil, I want you to focus on one of the important aspects that GCCs are currently looking at. They are also looking at scalability here and several states today are offering incentives, both fiscal and regulatory, under the state GCC policies. Tell us something. What is happening in that space?

Nikhil Suri

With 1,800 GCCs already existing in India and the expectation that it will translate into about 3,000 GCCs in the next few years. One of the biggest things that GCCs need to factor in and examine before they decide to set up is the ‘place’ they want to set up. Of course, availability of human manpower is a key factor in terms of the GCC capabilities required. But besides that, the tax incentives being offered are tremendous and vary from state to state. Therefore, it becomes a very important aspect that GCCs need to examine which state is appropriate for them to set up so that they can maximize tax incentives while balancing it with the availability of skilled manpower.

For example, in the recent months, states such as Tamil Nadu, Karnataka, Maharashtra, and even northern states like Uttar Pradesh have introduced policies. Haryana is expected to come out with a policy soon, and many more states have already introduced such policies. So, it is a very important decision before GCCs decide to set up in India to analyze which state to choose, as this is a long-term decision once they set up a center.

Ritika Loganey Gupta

One more important change the budget has given for GCCs, especially in the BFSI sector (banking, financial services, and insurance), is related to GIFT City. GIFT City has been catching the attention of many companies and MNCs wanting to set up there. Previously, a tax holiday was given for companies setting up GCCs in GIFT City for 10 out of 15 years. The government, with an impetus to promote GIFT City, has now extended this tax incentive to 20 out of 25 years. So, there has been a clear extension of tax holidays for GCCs that want to set up operations in GIFT City – that is another important change.

To wrap up, Budget 2026 provides a clear signal to the world – India is definitely the place for GCCs to be. There are tax incentives, fiscal clarity, tax clarity, safe harbour provisions, advanced pricing arrangements, and clarity on GST reforms.

With that, we conclude today's episode on the EY podcast. Keep watching us for more insights. Thank you.

Moderator

Ritika Loganey Gupta, GCC Tax Leader and Partner, EY India

Ritika Loganey Gupta
GCC Tax Leader and Partner, EY India

Speakers

Nikhil Suri, Tax Partner, EY India

Nikhil Suri
Tax Partner, EY India

Vijay Iyer, National Leader and Partner – Transfer Pricing, EY India

Vijay Iyer
National Leader and Partner – Transfer Pricing, EY India

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