- Section 161 requires income from international transactions between associated enterprises to be computed at arm’s length price, and a computation that would lower Indian income or raise a loss is ignored.
- An accountant’s report on Form 48 (formerly Form 3CEB) is due one month before the return due date.
- From tax year 2026-27, software, ITeS, KPO and software contract R&D share one safe harbour margin of 15.5% on operating costs.
- Advance pricing agreements fix prices for up to five years.
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Why does transfer pricing matter for an India subsidiary?
Because the subsidiary’s profit is set by the price it charges its parent. Charge too little and India’s Transfer Pricing Officer adjusts it upward, with tax and interest on the difference, often years after the year in question has closed.
Most Indian captive centres work on cost plus. The wholly owned subsidiary bills the parent its costs plus a mark-up. The fight is over the mark-up.
Disputes drag. Hence the safe harbour.
What changed in the safe harbour rules for 2026?
Simpler and cheaper. The Income-tax Rules, 2026 merged four categories into one and cut the margin. KPMG’s flash note on the safe harbour changes sets out the detail.
| Feature | Before | From tax year 2026-27 |
|---|---|---|
| Categories | Software, ITeS, KPO, contract R&D | One “IT services” category |
| Margin on operating cost | 17% to 24% | 15.5% |
| Eligibility threshold (transaction value) | ₹300 crore | ₹2,000 crore |
Suppose a Pune Global Capability Center runs on ₹50 crore of operating costs. At 15.5% it reports ₹7.75 crore of profit, against ₹8.5 crore at the old 17% software margin and ₹9 crore at the old 18% KPO margin. That’s ₹75 lakh less taxable income each year.
No audit fight either.
The option now runs for five consecutive tax years after one filing on Form 49. Pharma contract R&D stays outside the new category. Data centres got a separate safe harbour of their own, set at 15%.
Does transfer pricing apply if you hire through an EOR?
Usually not in India. With an employer of record, you have no Indian group company, so there is no transaction between associated enterprises to price.
The EOR bills you a service fee as an unrelated vendor, negotiated like any other supplier contract, which makes it an arm’s length price by design.
Transfer pricing arrives when you open your own entity and move staff into it. The other risk to watch at that stage is permanent establishment, since a fixed place or dependent agent can create one. Our analysis of the tax advantages of switching a cost-centre subsidiary to EOR runs through both sides.
How does Remunance help you plan around transfer pricing?
Remunance can carry your India team on EOR while the case for an entity builds, then set up the subsidiary and move the staff across. Our India subsidiary formation work includes that transfer, so payroll continues without a gap. Your transfer pricing policy itself should come from your tax adviser. To compare EOR costs with a subsidiary’s tax and compliance load, get an EOR versus entity comparison.
What else do people ask about transfer pricing in India?
What is the safe harbour margin for IT services in India?
15.5% on operating costs from tax year 2026-27, for eligible taxpayers with transactions up to ₹2,000 crore. It replaced margins of 17% to 24%.
Who must file a transfer pricing report in India?
Any company with international or specified domestic transactions with associated enterprises. Form 48 is due one month before the return.
Is transfer pricing the same as corporate tax?
No. Transfer pricing fixes the profit. Corporate tax in India then applies the rate, 22% for most domestic companies opting for section 200.
Planning a hire in India?
Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, which was later acquired by ADP.