What changed in India-US transfer pricing for FY26.

Three meaningful changes (Master File / CbCR threshold revision, Safe Harbour update for IT/ITeS captives, and Advance Pricing Agreement turnaround acceleration) meaningfully shift how Indian arms of US groups should approach FY26 documentation.

The macro context

India-US transfer pricing has been under sustained reform for the last four years. The OECD BEPS 2.0 Pillar 1 / Pillar 2 architecture has shifted the global frame; India's domestic Income Tax Act has tightened Section 92 documentation; and the United States has refined Section 482 enforcement on intangibles and services. For Indian-resident entities that are arms of US groups (and the GCC India captives that have proliferated since 2020), FY26 is the first year where three substantive changes land at once.

Change 1: Master File / CbCR threshold revision

The Master File and Country-by-Country Reporting (CbCR) thresholds under Section 286 and Rule 10DA have been revised effective April 2025. The consolidated group revenue threshold for CbCR remains €750 million, but the India-side filing threshold for the local Master File component has been clarified. Entities below ₹500 crore consolidated group turnover with Indian operations of less than ₹50 crore are now expressly exempted from the Master File local filing, even where the global group exceeds the CbCR threshold.

What this means in practice: Mid-cap US groups whose India captive has revenue below ₹50 crore can stop filing the local Master File. They still file the Form 3CEB and the standalone TP study. But the parallel-Master-File overhead (which has been a real burden for groups in the $200M–$500M global revenue band) drops out for FY26 onwards.

What it does not mean: The reduction is from local Master File filing, not from the documentation obligation itself. The Master File (in its OECD-template form) is still maintained at group level. We still recommend our captive clients keep an India-aligned Master File on file in case of audit, but it is no longer a statutory submission for the band described.

Change 2: Safe Harbour update for IT/ITeS captives

The Safe Harbour Rules under Section 92CB / Rule 10TD were quietly updated in July 2025 with mark-up bands now refreshed to reflect more recent benchmarking data. For captive Indian IT/ITeS entities providing software development services to a US parent, the Safe Harbour mark-up is now 17.5% (down from 18% in the previous notification) for entities with Indian transaction value up to ₹100 crore, and 18.5% for the ₹100–₹200 crore band. The previous step-down in mark-up at the ₹200 crore boundary continues unchanged.

What this means in practice: For most GCC India captives we work with, electing Safe Harbour at 17.5% for FY26 is a faster, cheaper alternative to a full TP study with margin negotiation. The election is irrevocable for five years and removes the captive from TP audit scrutiny for that period.

The trade-off: Safe Harbour is "pay slightly more, save audit cost." A captive whose actual benchmarked margin would be 13–15% loses 2.5–4.5 points to the safe-harbour cost. For most clients we model both (Safe Harbour vs full TP study), and the choice depends on the captive's growth trajectory, the parent's capital flexibility, and tolerance for audit time.

Change 3: APA programme acceleration

The Advance Pricing Agreement (APA) programme under Section 92CC has historically suffered from a turnaround problem. Bilateral APAs (BAPA) with the US Competent Authority routinely took 4–6 years to conclude. CBDT's revised internal targets, communicated through the August 2025 directive, aim for 30% of pending APAs concluded within 24 months, with new applications targeted for 36-month conclusion.

This is realistic for unilateral APAs (UAPA), where India alone signs. It remains aspirational for bilateral APAs because the US side moves on its own timeline.

What this means in practice: If your captive has stable, recurring transactions with the US parent and the captive is large enough that audit cost matters (typically ₹200 crore+ in transaction value), a unilateral APA filed in FY26 can realistically conclude before the FY29 audit cycle. That meaningfully shifts the cost-benefit calculation. We have several captive clients filing UAPA in FY26 that would have been deterred by the older 5-year norm.

What you should do for FY26

1. Run the Safe Harbour election analysis early. The election must be made before filing the FY26 ITR. Late elections are not entertained. We recommend running the analysis in Q2 FY26 (July-September 2025) to leave time for parent-side internal approval.
2. Map your Master File status. Confirm whether your group falls into the new exemption band. If yes, deprioritise the local Master File submission. If no, keep filing as before.
3. Reassess APA viability. If your captive is over ₹200 crore in transaction value and the audit cycle is starting to feel like a recurring event, a UAPA filing now has materially better economics than it did 18 months ago.
4. Tighten Form 3CEB. Form 3CEB filing is unchanged but examination scrutiny has tightened. The most common adjustments we see are around (a) characterisation of the Indian captive (R&D vs ITeS), (b) inclusion of stock-based compensation in cost base, and (c) treatment of capacity-utilisation adjustments. These are the three points where assessments are being raised in FY24 and FY25 cycles, and Form 3CEB documentation should pre-empt them.

The bottom line

The three FY26 changes net out positive for most US-parented Indian captives. The Master File exemption removes overhead for mid-cap groups, the Safe Harbour rate is slightly lower, and the APA route is becoming viable for the first time in a decade. For groups large enough to feel scrutiny risk, the right FY26 conversation includes Safe Harbour election analysis and APA viability, not just routine Form 3CEB documentation.

This note is general guidance and is not legal or tax advice. Transfer pricing analysis is fact-specific and turns on functional analysis, comparables selection, and documentation choices that are unique to each captive. Get in touch if you would like to discuss the FY26 picture for your group.