Most India-incorporated SaaS teams with a US Delaware C-Corp parent run a cost-plus relationship: the Indian subsidiary invoices the US parent for engineering services, marked up over its fully loaded cost. Those payments are international transactions with an associated enterprise, so they must be priced at arm's length. Get the markup and the paperwork right and the review is routine. Get them wrong and a transfer pricing adjustment adds to the Indian company's taxable income, with interest.
Which Act applies to which year
For FY 2025-26 (AY 2026-27), transfer pricing is under sections 92 to 92F of the Income-tax Act, 1961, with an accountant's report. From Tax Year 2026-27, the Income-tax Act, 2025 carries equivalent transfer pricing rules under new section numbers. We map the new sections for your group when we prepare the first report under the 2025 Act.
The cost-plus benchmark
Contract software development and IT-enabled services are usually benchmarked using TNMM (the Transactional Net Margin Method) against comparable Indian companies providing similar services. The cost base should be fully loaded, including ESOP cost, leave encashment and gratuity. There is no markup that is safe by default: the defensible range comes from the benchmarking study for your year, and it moves with the comparables.
Safe harbour as a shortcut
The Safe Harbour Rules let an eligible contract software development provider adopt a prescribed markup that the department will not question, in return for giving up the argument for a lower margin. The eligibility limits, the markup rates and the years an election covers have all been amended over time, so check the rules in force for your year before you opt in. We run the numbers both ways first.
Documentation and due dates
Form 3CEB is the accountant's report on your international transactions. It is not a 'Local File': the local documentation is the transfer pricing study you keep on record, and Form 3CEB is the report filed on the portal. For FY 2025-26, Form 3CEB is due by 31 October 2026 and the return by 30 November 2026.
A Master File in Form 3CEAA and a country-by-country report in Form 3CEAD apply only above consolidated group revenue thresholds, which most early-stage SaaS groups do not reach. Check them each year as the group grows. Payments to the parent may also need Form 145 and 146, the old 15CA and 15CB.
We prepare the study and Form 3CEB alongside the tax audit and the company's return. If you are still setting up, see our Indian subsidiary and international business setup services, and read how the parent is funded from India in FEMA ODI for a foreign subsidiary. Call or WhatsApp +91 70444 94804.
Frequently asked questions
Does an Indian subsidiary of a US SaaS company need transfer pricing?
Yes. Service fees, cost recharges, royalties and loans between the Indian subsidiary and its parent are international transactions with an associated enterprise. They must be at arm's length, and the subsidiary files an accountant's report in Form 3CEB each year.
Which law governs transfer pricing for FY 2025-26?
Sections 92 to 92F of the Income-tax Act, 1961. From Tax Year 2026-27, the Income-tax Act, 2025 applies, with equivalent transfer pricing rules under new section numbers.
What is Form 3CEB and when is it due?
Form 3CEB is the chartered accountant's report on international transactions and specified domestic transactions. For FY 2025-26 it is due by 31 October 2026, and the return for such taxpayers is due by 30 November 2026.
What markup should an Indian dev centre charge its parent?
There is no fixed safe number. The markup should be supported by a benchmarking study, usually under TNMM, against comparable Indian service providers for the same year, on a fully loaded cost base.
Should we opt for safe harbour?
It can save a dispute if your margin is at or above the prescribed rate. The rates, eligibility limits and election period have been amended over time, so check the rules in force for your year and compare them with your benchmarking result before opting in.
Do we need a Master File or CbC report?
Only if your consolidated group revenue crosses the prescribed thresholds. Most early-stage SaaS groups do not, but the test should be run every year as the group grows.
Transfer pricing study har saal banana padta hai?
Yes. The benchmarking is done for each year, because comparables and your own margins change. Form 3CEB is also filed every year the company has international transactions with its parent or group companies.
About the author
CA Deepak Jaiswal
Founding Partner, FCA at Regikart. Want to discuss this in the context of your business?
