Hyderabad has become one of the largest destinations in the world for global capability centres (GCCs) — the captive technology, engineering, analytics and shared-services centres of multinational groups. Setting one up involves company law, foreign exchange, income tax, transfer pricing, GST and employment law, and decisions in one area affect the others. This checklist covers the main steps.

1. Choose the entity

  • Wholly owned subsidiary (private limited company) — the most common choice. It is a separate Indian company, can employ staff and contract with the parent, and is taxed only on its own income.
  • Branch office — an extension of the foreign company, set up with approval through an authorised dealer bank. The foreign company is taxed directly in India on the branch's income, at a higher rate than a domestic company.
  • LLP — possible where FDI in LLPs is permitted under the automatic route, but uncommon for GCCs.

A liaison office cannot be used for a GCC, as it is not allowed to earn income.

2. Foreign investment compliance

  • FDI in IT and IT-enabled services is permitted up to 100% under the automatic route.
  • Report the issue of shares to the foreign parent in Form FC-GPR within 30 days of allotment.
  • File the annual return on foreign liabilities and assets (FLA) with the RBI by 15 July each year.
  • Investment from entities of countries sharing a land border with India requires government approval.

3. Transfer pricing

A GCC usually provides services only to its group, so its income is determined by its transfer pricing model — typically cost plus a markup.

  • Carry out a functional analysis to support the markup. A centre doing higher-value work, such as product development or research, will need a higher return than a routine back-office.
  • Prepare annual transfer pricing documentation and file Form 3CEB.
  • Consider the safe harbour rules for eligible services, or an advance pricing agreement (APA) for long-term certainty.
  • Allocate costs such as parent-company stock awards and recharges consistently.

See our article on transfer pricing documentation best practices.

4. Permanent establishment risk for the parent

If the GCC's employees conclude contracts for the parent, or the parent's staff work from the Indian centre for extended periods, the parent may be treated as having a permanent establishment in India and be taxed here. Structure the service agreement, roles and secondment arrangements to manage this risk.

5. Corporate tax

An Indian subsidiary can opt for the concessional rate under section 115BAA — an effective rate of about 25.17% — with no minimum alternate tax, in exchange for giving up most deductions.

6. GST on services to the parent

  • Services to the overseas parent can qualify as export of services, which is zero-rated. Export under a Letter of Undertaking (LUT) without paying tax, and claim refunds of accumulated input tax credit.
  • Whether the services are exports depends on the place-of-supply rules. Classification as "intermediary" services has been a long-running area of dispute, so contracts and invoicing should be structured with advice.

7. Employment and local registrations in Telangana

  • Professional tax registration and deduction
  • Shops and establishments registration for the office
  • EPF and ESI registration
  • Payroll and TDS on salaries, including perquisites on stock awards of the parent

8. Ongoing compliance calendar

  • Monthly: TDS, GST returns, payroll compliances
  • Quarterly: TDS returns
  • Annually: statutory audit, tax audit, Form 3CEB, income tax return, ROC filings, FLA return

Frequently asked questions

What is the best entity for a GCC in India?

Usually a wholly owned subsidiary incorporated as a private limited company. It is taxed only on its own income and can employ staff and contract with the parent.

Is 100% FDI allowed for a GCC in India?

Yes, for IT and IT-enabled services under the automatic route. Investment from countries sharing a land border with India needs government approval.

How is a GCC taxed in India?

On its own profits, which are usually set by a cost-plus transfer pricing model. An Indian subsidiary can opt for the concessional rate under section 115BAA, about 25.17%.

Is GST payable on services a GCC provides to its foreign parent?

The services can qualify as an export and be zero-rated under a Letter of Undertaking, depending on the place-of-supply rules. Intermediary classification is a known risk, so contracts should be structured with advice.

How we help

ASKN & Co. LLP supports multinationals setting up and running GCCs in Hyderabad — incorporation, FEMA filings, transfer pricing, GST refunds, accounting and audit. See our international tax and transfer pricing and company registration services.

This article is general information based on the law as at the date shown and is not professional advice. Please consult us before acting on it.