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FOR GLOBAL CAPABILITY CENTRES IN INDIA

GCC India Advisory.

Global Capability Centre setup and ongoing operations: entity structuring, transfer pricing, FEMA compliance, payroll and ESOPs, Virtual CFO support, multi-state GST, and statutory and tax audit coordination — for the foreign companies establishing or operating GCCs in India.

01 · What we do

Our work in this practice

Global Capability Centres are the Indian operational entities of foreign companies, established to deliver in-house services back to the global parent across engineering, research, finance, operations, customer support, and increasingly knowledge-intensive functions including AI/ML model development, product management, and strategic functions. The GCC sector in India has grown to over 1,800 entities employing more than 1.8 million professionals.

The GCC operating model has a distinctive regulatory and structural profile. The entity is typically a Wholly Owned Subsidiary of the foreign parent, operating under a cost-plus services arrangement where the Indian entity recovers operating costs plus a benchmarked markup from the parent. This structure intersects with transfer pricing regulations, FEMA, the GST framework (typically zero-rated for export of services), labour law, the Income Tax Act, and the Companies Act.

Entity structuring for GCC setup is typically the WOS route, with capital structure calibrated to the parent's funding rhythm, initial operating losses through ramp-up, and long-term operational pattern. Specific considerations include SEZ registration for service exports (with associated incentives under Section 10AA, substantially phased down post-2020 sunset), STPI registration framework (continuing relevance for export of services classification), and multi-state GST registrations.

Transfer pricing is the operational core of GCC compliance. The cost-plus services arrangement between the Indian GCC and the foreign parent must be at arm's length under Section 92 of the Income Tax Act. The defensible cost-plus markup for typical engineering and back-office services is 8% to 12%, supported by benchmarking studies of comparable Indian IT services providers. Annual compliance covers Form 3CEB, local file documentation, master file documentation where consolidated revenue exceeds INR 500 Cr, and Country-by-Country Reporting where group revenue exceeds €750 million.

FEMA compliance covers inward remittance of funding from the parent (typically equity injections under FDI, with Form FC-GPR filed within 30 days of allotment), outward remittance of dividends or service fees (subject to applicable withholding and Form 15CA/15CB), and reporting requirements including the Annual Return on Foreign Liabilities and Assets and Authorised Dealer reporting.

Payroll and ESOPs for GCC employees follow Indian employment frameworks: salary structure aligned with income tax provisions, statutory contributions (PF, ESI, Professional Tax), Gratuity and Bonus Act provisions, and the ESOP framework under the Companies Act 2013 and Section 17(2)(vi). For Indian employees of a foreign parent, the foreign parent's ESOP plan is operationalised through the Indian subsidiary with perquisite tax position on exercise, FEMA framework for the grant, and eventual sale or repatriation framework.

Multi-state GST registrations are required for GCCs operating across multiple Indian states. The service tax treatment of GCC services to the foreign parent is typically zero-rated under the GST framework as an export of services, subject to realisation of consideration in foreign exchange and the Letter of Undertaking (LUT) filed annually. Refund claims for input tax credit on procurement are a standing workstream. Statutory audit, tax audit, transfer pricing audit, Company Secretary compliance, and the Virtual CFO function provide integrated operational accountability.

02 · Who this is for

Client profiles

Foreign technology companies establishing engineering centres

Companies setting up India-based engineering, R&D, product, or AI/ML operations, typically with 50 to 5,000+ headcount horizon.

Foreign service firms establishing back-office or KPO operations

Financial services, professional services, consulting, and other service firms establishing India delivery centres for global service delivery.

Existing GCCs requiring ongoing operational compliance

Established GCCs (typically 200+ headcount) requiring integrated transfer pricing, statutory compliance, payroll, and operational support without internal CFO or general counsel function.

GCCs in operational transition or expansion

GCCs undergoing major expansion, relocation across states, structural reorganisation, or scope expansion into new service categories.

03 · How we engage

Engagement structure

GCC setup

Entity incorporation, multi-state GST registrations, STPI or SEZ optionality analysis, transfer pricing framework setup, and operational readiness within 8 to 12 weeks.

Transfer pricing

Annual benchmarking study, Form 3CEB, local file, master file, contemporaneous documentation, and the Advance Pricing Agreement framework where applicable.

Ongoing operational compliance

MCA filings, statutory audit coordination, tax audit, GST returns and refunds, FEMA reporting, payroll, and the consolidated annual compliance calendar.

ESOP and senior employee tax

ESOP grant operationalisation, perquisite tax compliance, senior employee tax advisory, and the cross-border equity grant framework.

04 · Representative scenarios

Illustrative engagements

Representative scenario

US technology company establishing India AI/ML engineering centre

A US-headquartered AI/ML company is establishing an India engineering centre with 60-person initial headcount in Bengaluru, scaling to 200 over 24 months, with focus on model development and product engineering. Considerations: WOS structure with calibrated capital, SEZ versus non-SEZ analysis, transfer pricing framework on cost-plus services (8% to 12% markup with benchmarking), IP assignment to US parent under inter-company services agreement (with attention to AI/ML model and weights ownership), ESOP grant framework for India employees on US parent's plan, and integrated monthly reporting. Engagement: setup, ongoing operational compliance, transfer pricing, and Virtual CFO function.

Representative scenario

Singapore financial services firm establishing back-office GCC

A Singapore-headquartered financial services firm is establishing an India back-office GCC with 250-person headcount across operations, technology, and risk functions in Hyderabad and Bengaluru. Considerations: entity structure with multi-state GST registrations, transfer pricing on back-office services (typically 12% to 18% markup for higher-complexity functions), sectoral regulatory considerations, payroll and ESOP framework, and integrated Singapore-India tax position. Engagement: setup, ongoing operational compliance, multi-state GST coordination, and Singapore-India tax advisory.

Representative scenario

Established GCC operational transformation

An established US Fortune 500 company's Indian GCC with 1,200 headcount, currently providing back-office services, is expanding scope to include product engineering and AI/ML functions. Considerations: transfer pricing framework refresh (different functions, different benchmarks, potentially different markups), IP ownership framework for new functions (particularly AI/ML), ESOP plan operationalisation for the expanded employee base, operational restructuring across the legal entity, and integrated communication to the parent's global tax and finance functions. Engagement: transfer pricing refresh, IP framework setup, ESOP operationalisation, and ongoing operational compliance.

05 · Frequently asked

Questions clients ask

What is the typical timeline for GCC setup?

For a GCC of 50 to 200 initial headcount with operations in 1 or 2 Indian states, the typical setup timeline is 10 to 16 weeks from instructions to operational readiness, covering incorporation (4 to 6 weeks), GST and tax registrations (3 to 4 weeks), bank account opening and operational setup (3 to 4 weeks), and parallel STPI or SEZ registration (4 to 8 weeks where applicable). Larger GCCs with multi-state operations and more complex structural elements can extend to 16 to 24 weeks.

What is the defensible transfer pricing markup for GCC services?

For typical software development and engineering services from an Indian GCC to a foreign parent, the defensible cost-plus markup is 8% to 12%, supported by benchmarking studies of comparable Indian IT services providers. For higher-complexity services (R&D, risk and compliance, finance and accounting at senior levels), the defensible markup typically extends to 12% to 18%. For routine back-office services, the defensible markup is typically 6% to 10%. The specific markup is supported by the annual benchmarking study calibrated to the actual function performed.

Does STPI registration still provide tax benefits?

The STPI registration's principal tax benefit, Section 10A (export profits deduction), has been substantially phased down following the 2010 sunset. Current STPI registration provides operational benefits including customs and excise duty exemptions on import of capital goods, foreign exchange transaction support, and the export reporting framework, but the direct tax holiday for new units is no longer available. SEZ units established before the 2020 sunset retain residual benefits under Section 10AA.

How are ESOPs from a foreign parent treated for Indian GCC employees?

ESOPs granted by a foreign parent to Indian GCC employees are taxable in India under Section 17(2)(vi) at exercise, on the differential between fair market value at exercise and exercise price. The perquisite is treated as salary income, with TDS deducted by the Indian employer. At eventual sale, the gain is treated as capital gain in India with cost basis being the FMV at exercise. Foreign Tax Credit may be available where the same income is taxed by the foreign jurisdiction. The Indian employee must also comply with FEMA on the offshore holding.

Can a GCC operate from multiple Indian cities?

Yes. Most GCCs operate from multiple Indian cities (typically Bengaluru, Hyderabad, Pune, NCR, Chennai, and increasingly Tier-2 cities). Each city of operation triggers its own state-specific compliance including GST registration, Shop and Establishment registration, Professional Tax, and state-specific labour law registrations. Our practice covers the consolidated multi-state compliance framework with a single point of accountability.

What is the role of APA for GCCs?

An Advance Pricing Agreement under Section 92CC is a structured agreement between the taxpayer and the Indian Tax Department on the transfer pricing methodology applicable to specified international transactions over a 5-year forward window (with optional 4-year rollback). For GCCs with stable, long-term cost-plus service arrangements, an APA provides significant transfer pricing certainty. The APA process is multi-year (24 to 48 months) but the resulting certainty is valuable for large GCCs.

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Each engagement begins with a structured workshop covering your specific facts, timeline, and constraints. We respond with an option analysis and indicative fee within five working days of the initial discussion.

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