Global Capability Centers (GCCs) have become a key driver of business expansion for multinational companies. India has emerged as the leading hub for GCCs, with over 1,500+ centers employing 1.66 million professionals and contributing $46 billion to the economy.

One of the biggest advantages of setting up a GCC in India is the range of tax benefits available. Businesses can significantly reduce their tax burden through:


✔ Lower corporate tax rates
✔ Income tax holidays in SEZs
✔ GST exemptions on IT services
✔ Duty-free imports on tech & infrastructure
✔ Additional incentives for Tier-2 & Tier-3 cities

Whether you’re expanding an existing GCC or setting up a new one, understanding India’s tax incentives can help businesses maximize profitability and compliance.

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5 Key Tax Benefits for GCCs in India

Setting up a Global Capability Center (GCC) in India comes with multiple tax advantages designed to lower operational costs and attract foreign investment. Below are the major tax benefits available to GCCs operating in India.

Corporate Tax Benefits

India offers lower corporate tax rates to incentivize businesses, especially in the GCC sector.

15% Corporate Tax Rate – Applicable to new manufacturing entities under certain conditions.
22% Standard Corporate Tax Rate – Lower than many global competitors, making India a cost-effective destination.
Tax Deductions for R&D Expenses – GCCs focusing on research and development can claim deductions under Section 35 of the Income Tax Act.
Export-Oriented Tax Benefits – GCCs that provide services to global markets can benefit from reduced tax liabilities.

Special Economic Zone (SEZ) Benefits

If your GCC is set up in an SEZ (Special Economic Zone), you can claim massive tax exemptions under the SEZ Act.

100% Tax Exemption on Export Profits – First 5 years
50% Tax Exemption – Next 5 years
50% Deduction on Reinvested Profits – Additional 5 years

GST Exemptions – No GST on services provided by SEZ-based GCCs.
Custom Duty Waivers – No import duty on infrastructure & technology used in SEZ-based GCCs.
Exemption on Dividend Distribution Tax – GCCs in SEZs can repatriate profits without additional tax burdens.

Who should apply?

Any export-driven GCC (IT, BPO, R&D, analytics) should consider setting up in an SEZ to maximize tax savings.

Goods and Services Tax (GST) Benefits

India’s GST system offers several tax breaks to GCCs:

Input Tax Credit (ITC) on Services – GCCs can claim GST refunds on input services, such as IT and telecom expenses.
Zero-Rated GST for Exports – If your GCC provides services to foreign clients, it qualifies as an export and is exempt from GST.
 Inverted Duty Refunds – If input taxes are higher than output GST, companies can claim a refund on excess paid GST.

Key Benefit: GCCs offering software development, financial services, or IT support to global markets can recover GST expenses and improve cash flow efficiency.

Custom & Import Duty Exemptions

GCCs often need high-end technology and equipment to run efficiently. India provides duty exemptions to reduce operational costs.

Duty-Free Imports – Equipment and IT infrastructure can be imported without customs duty if the GCC is in an SEZ or Software Technology Park (STP).
Capital Goods Exemptions – Reduced import duties on machinery used in software development and analytics.

Who benefits?
IT, AI, and analytics-driven GCCs that require hardware & servers.
R&D-driven GCCs investing in high-tech machinery.

Government Incentives for Tier-2 & Tier-3 Cities

The Indian government is actively promoting GCC expansion in non-metro cities by offering tax incentives and operational cost benefits.

Lower Tax Rates for New Businesses – Some states offer state-level tax exemptions for GCCs setting up in Tier-2 & Tier-3 cities.
Infrastructure Grants & Subsidies – Companies setting up in emerging IT hubs get financial support for infrastructure development.
Lower Operational Costs – Salaries, real estate, and utilities cost 30-40% less in Tier-2 & Tier-3 cities compared to metro hubs.

Why Consider This?
GCCs moving to cities like Pune, Coimbatore, Jaipur, Bhubaneswar, and Chandigarh can save on taxes and operational expenses, while benefiting from a skilled workforce.

Compliance & Regulatory Considerations for GCCs in India

While India offers attractive tax benefits for GCCs, businesses must comply with certain regulations to qualify for these incentives. Here’s what GCCs need to keep in mind:

Mandatory Tax Filings & Compliance Requirements

All GCCs in India must adhere to corporate tax laws and regulatory filings, including:

Income Tax Filings – Annual tax returns must be filed under the Income Tax Act, 1961.
GST Returns – If applicable, monthly/quarterly GST returns must be filed under India’s GST framework.
SEZ Compliance Reports – If operating in an SEZ, businesses must submit performance and export reports to maintain their tax benefits.
Tax Deducted at Source (TDS) Compliance – GCCs must deduct and deposit TDS on employee salaries & vendor payments.

Key Consideration:
Failure to comply with these tax regulations can lead to penalties or loss of tax exemptions, making tax planning essential.

Transfer Pricing Regulations for Foreign-Owned GCCs

Many multinational companies operate GCCs in India as wholly-owned subsidiaries. To prevent tax evasion, India enforces transfer pricing laws under the Income Tax Act, 1961.

Arm’s Length Pricing Rule – GCCs must ensure that transactions with their parent company follow fair market value pricing.
Annual Transfer Pricing Documentation – Required if the GCC has transactions with its foreign parent company.
Advance Pricing Agreements (APAs) – Companies can pre-agree on transfer pricing models with Indian tax authorities to avoid disputes.

Who needs to comply?
Any GCC that engages in cross-border transactions with its parent company or affiliates must document and justify pricing structures to avoid tax penalties.

Double Taxation Avoidance Agreement (DTAA) Benefits

India has DTAA agreements with 90+ countries, allowing GCCs to avoid double taxation on international profits.

Foreign Tax Credit – GCCs can claim tax relief if their parent company is taxed in another country.
Lower Withholding Tax on International Payments – Reduced tax on royalty, technical fees, and dividend payments to parent companies abroad.
Tax Treaty Benefits – Multinational GCCs can benefit from reduced tax rates on cross-border transactions.

Example:
If a US-based company operates a GCC in India, it can claim relief under the US-India DTAA agreement to avoid paying tax twice on the same income.

Applicable Tax Treaties & Exemptions for Global Companies

GCCs can leverage India’s tax treaties to minimize their tax burden on:

Royalty & Technical Fees – Lower taxes for payments related to software development, patents, and technical services.
Capital Gains Tax Relief – Special tax exemptions for equity investments & shareholding structures.
Profit Repatriation – GCCs can transfer profits back to the parent company with reduced tax liabilities under treaty agreements.

Why Does This Matter?
Using tax treaties effectively can significantly reduce overall tax costs and improve profitability for GCCs.

Maximizing Tax Benefits: Best Practices for GCCs

To make the most of India’s GCC tax incentives, businesses need proactive tax planning. Here are some best practices that will help GCCs reduce tax liabilities while staying compliant.

Choosing the Right Tax Structure for Maximum Savings

Selecting the correct business structure can significantly impact tax savings.

Private Limited Company vs. LLP – Private limited companies qualify for corporate tax benefits, while LLPs have different tax structures but can offer flexibility.
SEZ vs. Non-SEZ Operations – GCCs focused on export services should register under an SEZ for income tax holidays.
Branch Office vs. Wholly-Owned Subsidiary – A wholly-owned subsidiary can claim deductions and tax exemptions, while a branch office has limited tax benefits.

Key Takeaway:
Structure your GCC based on long-term tax efficiency to optimize tax exemptions.

How to Claim SEZ Tax Benefits Effectively

GCCs operating in Special Economic Zones (SEZs) must follow certain procedures to claim tax exemptions.

Register with the SEZ Authority – Businesses must obtain an SEZ unit license before availing of tax benefits.
Maintain Separate Financial Records – GCCs need to track revenues, expenses, and export activities for SEZ tax filings.
Ensure Export Compliance – SEZ benefits are available only for businesses exporting services/products outside India.
File Annual SEZ Reports – Companies must submit periodic reports to justify tax claims and continue enjoying SEZ incentives.

Pro Tip:
GCCs should work with tax professionals to streamline SEZ documentation and prevent non-compliance issues.

overnment Schemes & R&D Tax Credits for GCCs

India offers R&D tax benefits to companies investing in innovation, software development, and AI research.

Section 35(2AB) R&D Tax Deduction – Allows a 100% deduction on R&D expenses, making it attractive for tech-focused GCCs.
State-Specific IT Incentives – Some states provide additional tax rebates for software development & analytics-driven GCCs.
Startup India & Make in India Incentives – If a GCC qualifies as a startup or technology innovator, it can access reduced tax rates and funding support.

Best Practice:
GCCs investing in data analytics, automation, AI, and product engineering should explore R&D tax deductions to reduce their tax liability.

How to Utilize DTAA to Lower International Tax Liabilities

GCCs working with parent companies abroad can leverage DTAA (Double Taxation Avoidance Agreements) to reduce tax burdens.

Claim Foreign Tax Credits – Avoid double taxation on income, royalties, or technical service fees.
Use Lower Withholding Tax Rates – Many tax treaties allow GCCs to reduce tax on international payments.
Avoid Capital Gains Taxes in Certain Structures – GCCs can use treaty benefits to lower taxation on shareholding and investment structures.

Pro Tip:
GCCs should consult with tax advisors to structure cross-border transactions for maximum DTAA benefits.

Managing Compliance & Audit Readiness for Tax Benefits

Staying audit-ready is crucial to ensure continued tax benefits.

Keep Proper Documentation – Maintain records of export revenues, SEZ claims, R&D spending, and tax filings.
Annual Tax Filings – Ensure timely filing of corporate tax, GST returns, and SEZ compliance reports.
Stay Updated on Policy Changes – India’s tax policies evolve, and businesses should monitor regulatory updates to avoid missing benefits.

Best Practice:
GCCs should conduct internal tax audits to ensure full compliance with SEZ, GST, and corporate tax laws.

Conclusion

India offers significant tax advantages for Global Capability Centers (GCCs), making it one of the most cost-effective destinations for multinational businesses. From corporate tax reductions to SEZ exemptions, GST benefits, and duty-free imports, businesses can strategically lower their tax burden while ensuring compliance.

However, these tax incentives come with regulatory obligations. Businesses must stay compliant with SEZ rules, transfer pricing regulations, and DTAA agreements to fully benefit from India’s tax-friendly policies.