India’s thriving GCC story needs tax reforms to keep growing

In a world of shifting trade dynamics and geopolitical landscapes, India has emerged as a global leader in attracting Global Capability Centers (GCCs), hosting over 1,800 centres, accounting for more than 50% of the world’s GCCs and employing over 2.1 million professionals. The sector currently contributes about USD 68 billion in India’s direct gross value added (GVA).  This growth is driven by the country’s deep talent pool, robust digital infrastructure, and an increasingly supportive policy landscape.

The CII’s ‘Strategic Vision 2030’ report also anticipates that with continued policy support, India’s GCC ecosystem could scale to nearly USD 199 billion in output with around 5,000 centres across the country by 2030.

While Tier-1 cities like Bengaluru, Delhi NCR, Hyderabad, etc. continue to dominate, attention is increasingly turning to Tier 2 and Tier 3 cities, enhancing regional development and broadening talent access.

GCCs have evolved from cost-efficient support hubs to strategic hubs of innovation, design and decision-making. Multinationals eyeing India as a strategic GCC destination increasingly weigh their investments against the backdrop of tax predictability and regulatory stability – both of which are now pivotal to India’s sustained growth.

As GCCs operate in close coordination with their global counterparts, regular cross-border interactions have made permanent establishment (PE) exposure a pressing issue. With global leadership teams extensively engaging in strategic oversight from India, companies are increasingly wary of unintentionally triggering PE status – leading to unforeseen tax exposures. Well-defined rules around oversight activities and operational alignment are essential to reduce compliance friction and instill investor confidence. Additionally, to enhance India’s attractiveness, the government could also consider extending the concessional corporate tax rate to GCCs as previously introduced for manufacturing entities.

As GCCs primarily operate on a cost-plus mark-up model, transfer pricing (TP) remains a critical area. While India’s Advance Pricing Agreements (APAs) framework has provided some relief, companies still face persistent scrutiny over comparable companies, characterization, etc. Similarly, India’s safe harbour regime, though designed to foster TP certainty, has limited applicability due to low monetary threshold and higher markups compared to global standards.

Recalibrating these thresholds and adopting a more flexible approach that retains the cost-plus for routine services while allowing negotiated markups for advanced functions, would broaden their applicability and can enhance India’s tax competitiveness. The introduction of ‘block assessment’ in the Finance Act 2025 is a welcome move, but its impact will depend on practical and timely implementation. Additionally, with Bilateral Advance Pricing Agreement (BAPA) timelines currently averaging to 63 months, there’s a strong case for streamlining the process to align with OECD benchmarks and investor expectations.

Being service exporters, GCCs claim refunds of GST paid on input costs. However, blockage of working capital caused by delays / denial of refunds continues to be a big challenge often due to misclassification of services provided by GCCs, as Intermediary Services.

Clear guidance distinguishing core export services from intermediary activities is needed to prevent such disputes and enable faster refund processing.

Another pain point is disallowance of input tax credits (ITC) on essential employee-related expenses like transportation, insurance and canteen services that increases operational costs for GCCs particularly those operating in Tier 2 and Tier 3 cities where public infrastructure is limited.

Allowing ITC on such expenditures would help contain operational costs and improve cost competitiveness. GCCs with multi-state presence often face inconsistent GST interpretations and audits. An option of centralized audit mechanism could significantly reduce administrative burdens and compliance inefficiencies.

While India remains a front-runner in the global GCC landscape, economies such as the Philippines, Mexico and Poland are rapidly positioning themselves as strong contenders by offering generous incentives including multi-year tax holidays, subsidised investment and expedited clearances. 

Currently, many Indian states have introduced GCC policies, offering capital subsidies, hiring support and infrastructure aid, with a focus on Tier 2 and 3 cities. These efforts complement the proposed national GCC policy, are expected to harmonise fiscal/non-fiscal incentives and provide greater consistency and predictability for investors.

As India’s GCC story enters its next chapter, sustaining this momentum will require more than talent and infrastructure. Policy reforms aimed at reducing uncertainty, enhancing ease of doing business and enabling long-term strategic value creation will be vital. It demands tax and regulatory reforms aligned with the sector’s transformation. With the right policy alignment, India can not only retain its GCC leadership but also shape the future of these centers. 

Authored by Manisha Gupta and Tejasvi Anand,  Partners at Deloitte India.

Views are personal and do not represent the stand of this publication.