How to transform India into the world’s foremost hub for GCCs

Global Capability Centres (GCCs) in India are increasingly emerging as an essential driver of cost optimisation, innovation and global service delivery for large multinational entities. As strategic hubs, with primary focus on IT services, business process management, R&D, and analytics, GCCs are putting India on global map as indispensable part of global operations.

Recognising this, the Finance Minister in her last Budget Speech in February 2025, announced that a national framework for GCCs will be formulated. The minister mentioned “A national framework will be formulated as guidance to states for promoting Global Capability Centres in emerging tier 2 cities. This will suggest measures for enhancing availability of talent and infrastructure, building-byelaw reforms, and mechanisms for collaboration with industry.” Following from this, States such as Gujarat, Karnataka, Madhya Pradesh etc have laid down policies for incentivising GCCs.

Several Indian states offer targeted incentives to attract GCCs including capital and operational subsidies, payroll-linked hiring benefits, and tax or duty exemptions. These initiatives aim to lower setup and operating costs while promoting high-value job creation and innovation-driven growth in the GCC sector. Ironically, these measures are required to be well supported by the Central Government as over the last few years Government has withdrawn the income tax holidays previously available for GCCs apart from specific GCCs established in GIFT City. Further, crackdown by GST authorities disputing operations of GCCs as export vis-à-vis intermediary services has dented the position of India as tax friendly nation.

GCCs face complex tax challenges, including careful planning in entity structuring to avoid Permanent Establishment Risk, strict transfer pricing compliance, and high withholding taxes on cross-border payments. It is critical to judiciously navigating both direct and indirect tax regimes which adds to the burden, with rigorous documentation and frequent audits increasing compliance pressure. Rapid legislative shifts require GCCs to constantly adapt.

Government is required to consider certain benefits for fostering GCCs India. Some of these could be:

• Tax incentives for GCCs: Tax holidays from Income Tax and GST can be introduced for GCCs being set-up in Tier- 2/ Tier-3 cities apart from GIFT City. Where GCCs are engaged in research and development activities, specific tax incentives/ concessional income tax and GST rates can be considered.

• Deduction for increase in employment: Similar to the existing Section 80JJAA of the Income-tax Act, 1961, tax incentives can be introduced for expansion of their workforce beyond a specified threshold and with enhanced limit of salary paid to the employees.

• Presumptive tax regime: There is a need for a more flexible tax regime for GCCs by introducing a presumptive taxation regime to reduce litigation risks and compliance burdens.

• One stop digital window for regulatory approvals: Unlike the current process of GCCs taking approvals from various regulatory authorities, a one stop digital window can be set-up to grant all regulatory approvals required for setting up the GCCs.

• Clarification and Relaxation on Transfer Pricing Norms: Given the evolving nature of GCCs’ functions, tailored safe harbour rules (without any caps) and clearer guidelines can be laid down for GCCs to reduce Transfer Pricing disputes and compliance burden.

• Export incentives: Clear guidelines distingishing between export services and intermediary services for GCC operations would help allay doubts and litigation. GST law can be amended to recognize certain intermediary services as exports when provided by GCCs to their overseas parent/ group companies.

• GST regulatory reform: Implement single window GST clearance system integrating with SEZ and STPI framework where applicable. Establish dedicated GST helpdesk to address queries of GCC.

• Income Tax Credit (“ITC”) credit reforms: Government may mull about removing restrictions on ITC claim on construction/ civil works and employee related expenses as these expenses constitute expenditure in course or furtherance of business. Also, in cases where GCC operate in India on multi-location basis, allow ITC transfer between different locations under the same PAN without mandatory Input Service Distribution registration.

• Refund reforms: Implement automated GST refund mechanism for GCC export services with dedicated refund processing units clearing refund applications in 30-45 days.

These recommendations hold the power to transform India into the world’s foremost hub for GCCs, providing opportunities to talent in Tier-2 and Tier-3 cities making them vibrant economic centers, and driving the nation decisively towards the Viksit Bharat vision.

(Amol Khanna, Partner, Transaction Square & Sidharrth Shankar, Partner, JSA, Advocates and Solicitors. Views are personal)