Kamal Ghorui
By Radhika Saigal and Manoj MarwahUnion Budget 2026 propels India towards building a stable, scalable and globally competitive financial ecosystem that encourages global financial institutions to evaluate India not only as a growth market but also as a strategic base for delivery, innovation and risk-managed expansion. A key driver of investor confidence is the simplification and predictability through targeted tax provisions and reforms that reduces administrative overhead. One of the most consequential announcements in this context is the sharpening of India’s transfer pricing and tax certainty framework for technology and service-led operations—directly relevant for global companies running Global Capability Centers (GCCs) in India.
The Budget proposes a significantly expanded Safe Harbour regime for IT services, with a uniform safe harbour margin of 15.5% and an enhanced threshold that rises from ₹300 crore to ₹2,000 crore. Earlier differences between KPO, BPO, and other services often led to classification issues, especially for diversified and larger GCCs. A single margin better reflects how modern GCCs operate today, with integrated technology, analytics, and business functions.This also brings a much larger share of mid-sized and large GCCs within the Safe Harbour framework, while also reducing uncertainty for smaller centres that are scaling. At this scale, the threshold covers GCCs with headcounts of up to ~6,000-8,000, bringing around 80% of financial services (FS) GCCs within the framework – with the remaining 20 % covered by the Advance Pricing Agreements (APA) for whom also the timeline has been reduced to two years. These APAs help companies agree in advance on how their cross-border transactions (GCC & HQ) will be taxed, reducing the risk of future disputes. Earlier, this process could take several years, creating uncertainty for global firms operating GCCs in India. The faster timeline provides quicker tax clarity, making it easier for companies to plan investments, expand teams, and move higher-value work to India with greater confidence.By easing a long-standing compliance and transfer pricing burden, the change allows GCCs across sizes to plan expansion with greater confidence. It also proposes consolidating multiple service segments (including IT services, IT-enabled services and knowledge process outsourcing, and contract R&D) under a single category. For GCC-heavy global firms—many of whom support core banking platforms, digital channels, analytics, cybersecurity, operations and finance processes from India—this is a material development. It provides a predictable operating model for multi-year planning.Beyond taxation, the Budget introduces targeted fiscal incentives and skilling grants for Tier-2 cities such as Kochi, Indore, and Coimbatore. These measures aim to ease the pressure on metro cities while enabling GCCs to access new talent pools. This supports balanced regional growth as currently FS GCCs have scanty presence in non-metros.For global FS firms, the strategic impact is larger than transfer pricing alone. This framework supports a shift from India being viewed merely as a cost-efficient offshore center to being recognised as a stable, long-term delivery hub where scale can be pursued with fewer structural uncertainties. In practical terms, it enables leadership teams to make bolder commitments on headcount growth, product engineering expansion, and investments in data platforms and AI delivery from India, without the same degree of annual pricing and audit volatility. The option to continue safe harbour treatment for multiple years further strengthens the case for long-horizon operating models and long-term investments.Budget 2026 also strengthens India’s attractiveness through its broader posture on foreign investment and cross-border financial integration. Global firms tend to favour jurisdictions that combine growth with operational stability, and where the policy environment supports both local business development and global connectivity. This benefits international banks, insurers, asset managers and fintechs in evaluating India as a key node in their global growth strategy.A further tailwind for global FS investment and GCC scaling in India could come from the reported reduction of US tariffs to ~18%, which may improve the overall outlook for cross-border trade flows and global supply chains. When combined with Budget 2026’s safe harbour framework that enhances transfer pricing certainty for IT services, this creates a reinforcing cycle: higher global business activity drives greater FS servicing needs, while India’s improved regulatory and tax predictability strengthens the case for locating long-term capability build and critical delivery functions in India.(Radhika Saigal is FS Consulting Leader and Manoj Marwah is FS GCC Consulting Leader at EY India)
