India has emerged as the global epicentre for Global Capability Centres (GCCs), hosting over 1,800 centres that employ 2–2.16 million professionals and generating USD 64–68 billion in annual value addition. GCCs now contribute roughly 2% of India’s GDP and approximately 4% of services‑sector GDP, underscoring their central role in India’s innovation and digital‑services economy. With projections indicating 2,400+ GCCs by 2030 and a potential economic contribution of USD 100 + billion, the sector continues to scale rapidly. This scale and economic importance make clarity, simplicity and certainty in taxation essential. A stable and competitive transfer pricing regime directly strengthens India’s attractiveness as a global GCC destination, enabling sustained investment and operational continuity.

Budget 2026 builds on this momentum by introducing significant reforms to Safe Harbour and APA regimes.

India Safe Harbour Rules – An Overview

India’s Safe Harbour Rules provide a simplified transfer pricing compliance mechanism under which specified international transactions are deemed to be at arm’s length if conducted at prescribed margins or prices. By opting into safe harbour, taxpayers obtain upfront certainty, significantly reduce audit exposure, and avoid detailed benchmarking and prolonged litigation.

The regime is particularly relevant for routine, cost-plus service arrangements undertaken by captive entities and Global Capability Centres (GCCs), which form a substantial part of India’s cross-border services landscape.

The Erstwhile Safe Harbour Framework

Under the earlier framework, safe harbour adoption in the IT services sector remained limited due to structural and practical constraints:

• Multiple service-specific categories such as software development, IT-enabled services (ITeS), KPO and contract R&D
• Different mark-ups for each service, generally ranging from 17% to 24%
• Service-wise transaction value thresholds (approximately USD 33 million per category), restricting coverage to smaller captives
• Annual opt-in requirements and verification by the tax office, reducing operational ease and predictability

What Has Changed Post Budget 2026

The Union Budget 2026 marks a decisive shift in India’s approach to safe harbour by re-engineering the framework to align with the scale, maturity and complexity of modern GCCs[1].

The focus is clearly on simplicity, standardisation and scalability.

Key changes include consolidation of services, uniform margins, substantially enhanced thresholds, multi-year applicability, automated rule-based opt-in, and expansion to cover data centre and cloud services.

Safe Harbour – Before and After Finance Budget 2026

Why This Matters for Global Capability Centres (GCCs)

The revised framework directly addresses long-standing transfer pricing pain points for GCCs. Consolidation into a single service category eliminates complicated fragmentation of interconnected services, while the lower and standardised margin offers a commercially viable alternative to prolonged disputes and negotiations.

The significantly higher aggregate threshold allows large and fast-scaling GCCs to bring most, if not all, service activities under one pricing framework. Multi-year applicability and automated opt-in further reduce recurring compliance effort and audit exposure.

The explicit inclusion of data centre and cloud services at a cost-plus 15% margin also supports capital-intensive, digital-first and AI-led GCC operating models, reinforcing India’s position as a long-term global services hub.

Why the Detailed Safe Harbour Rules Will Be Critical

While Budget 2026 sets the policy direction, the effectiveness of the regime will ultimately depend on the detailed rules (including clarifications) yet to be notified.

Key areas requiring clarity include:

• Precise definitions of “Information Technology Services” and “data centre services”
• Treatment of the cost base, including free of cost assets and licenses, pass-through costs, extraordinary expenses and associated certification requirements
• Expectations around functional characterisation, intercompany agreements and contemporaneous documentation
• The extent of post-opt-in scrutiny and whether audits are restricted once safe harbour is elected

The degree of certainty provided on these aspects will determine whether the regime delivers on its promise of reduced litigation and administrative simplicity.

Impact on Companies with Existing, Ongoing or Contemplated APAs

The expanded safe harbour regime is likely to materially influence transfer pricing strategies for GCCs.

For taxpayers with concluded ongoing unilateral APAs, the revised regime provides an opportunity to reassess whether continued reliance on the APA remains optimal, particularly where covered transactions now fall squarely within safe harbour at commercially acceptable margins. However, given the binding nature of APAs, any transition would need careful evaluation of rollback periods, critical assumptions and termination risks.

For APA applications currently under negotiation and those being contemplated by taxpayers, evaluation of new safe harbour rules will be imperative to strategise the benefits of APA vis-a vis Safe harbour. 

Timing the Choice Between Safe Harbour and APA

The choice between safe harbour and APA is both time-sensitive and fact-specific.

Safe harbour is a prospective, ex-ante election requiring alignment of pricing from the outset. An APA, particularly with rollback, continues to be a powerful curative tool for resolving historical disputes and ongoing litigation.

Taxpayers for whom rollback coverage is critical—especially where assessments or appeals are pending—may still prefer the APA route despite longer timelines. Conversely, entities with relatively clean historical positions and routine operations may find it prudent to analyse the final safe harbour rules before deciding which is more beneficial based on the facts and circumstances of their case.

How the New Safe Harbour Regime Could Influence APA Outcomes

Although safe harbour margins are not legally binding on APA determinations, the introduction of a standardised 15.5% margin is likely to influence APA outcomes, particularly unilateral APAs.

For unilateral APAs, the safe harbour rate is expected to act as a strong reference point. Tax authorities may be less inclined to agree to materially lower margins for routine services when taxpayers have the option of opting into safe harbour. From the taxpayer’s perspective, prolonged APA negotiations may appear less attractive if outcomes converge around the safe harbour benchmark without offering incremental certainty.

For bilateral APAs, the impact will be more nuanced. While foreign competent authorities are not influenced by India’s safe harbour, the Indian negotiating position may increasingly reflect the revised framework. Final outcomes will, however, continue to depend on treaty dynamics, comparables and the objective of eliminating double taxation.

Associated Enterprise Perspective and Continued Need for Benchmarking

From the associated enterprise’s perspective, safe harbour certainty in India does not eliminate transfer pricing obligations overseas. Foreign tax authorities are not bound by India’s safe harbour margins, and benchmarking will continue to be required to substantiate arm’s length pricing in the counterparty jurisdiction.

Accordingly, while safe harbour simplifies Indian compliance, groups must still maintain robust economic analyses and documentation to manage global transfer pricing risk.

Relevance of CBDT Circular 6 of 2013 and Risk-Based Eligibility

Eligibility for safe harbour must also be reassessed in light of CBDT Circular 6 of 2013, which emphasises a risk-based approach. As many GCCs have evolved into higher-value roles with stronger governance, whether they continue to fit within a “routine services” construct will depend on the final rules and clarifications.

This assessment becomes particularly important given the consolidation of services under a single category and the implicit assumption of limited risk in the safe harbour design.

APA Timelines, Safe Harbour Uncertainty and Rollback Risk

APA applications must be filed by 31 March for the subsequent financial year to be the first covered year, with rollback eligibility of up to four preceding years determined accordingly. With detailed safe harbour rules yet to be notified, many taxpayers may choose to wait for clarity before committing to an APA.

However, deferring an APA filing beyond 31 March 2026 could result in the permanent loss of one rollback year. This creates a difficult trade-off between filing an APA based on incomplete information and waiting for regulatory certainty at the cost of reduced rollback coverage.

Key Questions Companies Should Consider Before Deciding

Before choosing between safe harbour and an APA, companies—particularly GCCs—should reflect on a few fundamental questions:

• Are your current margins below or above the safe harbour rate?
• Are you currently covered by an APA extending to tax years 26-27 and thereafter?
• Have you opted for safe harbour in prior years?
• Are you engaged in developing or owning intellectual property?
• Are there any unique cost elements in the cost base or are there any costs which are not included in computing the margins?

These questions help ensure that the decision is aligned with the company’s risk appetite, litigation exposure and long-term operating model.

Closing Remarks

The revamped safe harbour regime introduced in Budget 2026 represents a significant recalibration of India’s transfer pricing policy for routine services. By offering a scalable, predictable and commercially viable alternative to traditional benchmarking and APAs, it has the potential to reshape how GCCs approach transfer pricing certainty.

However, the true impact will depend on the detailed rules, eligibility thresholds and administrative posture adopted by the tax authorities. Until then, companies should adopt a balanced and forward-looking strategy—evaluating safe harbour and APA options in parallel, rather than in isolation.

***The authors were assisted by Mr. Hardik Jain.

[1] In line with recommendations of the CII GCC National Framework report co-authored by Deloitte.