India: Transfer Pricing

As global capabilities center transition from basic tasks of IT support to advanced innovative technology hubs characterized by AI model training & use of evidence-based research & development, this blog discusses how such functions must be evaluated for purposes of transfer pricing, issues regarding DEMPE, and documentation gaps that and contribute significantly to disputes.

This quarterly tax update examines critical judicial rulings that will shape international tax planning and M&A structuring in India, including the Delhi High Court's landmark decision on deputation arrangements and the Mumbai Tribunal's denial of loss carry-forward in demergers worth INR 2.4 billion.

Global Capability Centres in India have evolved from basic support operations into strategic hubs handling high-value functions like R&D, analytics, and procurement. As these centres scale and take on more complex responsibilities, multinational enterprises face heightened tax risks around permanent establishment classification and transfer pricing compliance that require careful structural review and documentation.

If your business operates across borders, compliance in India is now a moving, overlapping system. What used to be handled separately by legal, HR, and finance teams is now deeply interconnected.

India has evolved as a preferred destination for global firms over the years. In 2026, it’s no longer just an ‘attractive market’ anymore, but a jurisdiction where international companies are actively planning their next growth trajectory.

Within most multinational groups, transfer pricing is still perceived primarily as a technical compliance function. It is frequently treated as a year-end margin exercise — a benchmarking study intended to ensure that operating profit falls within a statistical range. Boards often view it as a documentation issue, while finance teams approach it as a provisioning variable.

India has emerged as the world's most preferred destination for GCCs, which are dedicated offshore units established by multinational corporations to deliver technology, R&D, analytics, operations, finance, ESG, cybersecurity and other enterprise-wide functions.

India has long been recognized as a global hub of highly trained and skilled workforce, especially in technology, finance, and business services.

Income tax is a tax levied and charged on individuals and entities based on their income or profits, in accordance with the provisions of the Income Tax Act, 1961.