Tax incentives could be the missing catalyst to push India’s GCCs up the innovation value chain

For more than two decades, GCCs have been one of India’s most durable economic success stories. From finance and HR to advanced engineering, analytics, and AI, GCCs today employ close to 2 million professionals and contribute billions of dollars in exports. Yet, even as the nature of work executed from India has grown dramatically in complexity and strategic importance, the country’s tax framework has not kept pace.

Without policy recalibration, experts warn that India risks locking its GCC ecosystem into a cost-optimisation model, just as global enterprises are deciding where innovation ownership, product mandates, and IP will reside over the next decade.

At the heart of the issue lies a structural contradiction. Innovation carried out within GCCs, spanning advanced R&D, AI platforms, high-performance computing (HPC), digital twins, semiconductor design, and global product engineering, is still largely taxed as routine operational expenditure. A dollar spent on frontier innovation is treated no differently from a dollar spent on transactional support work. The outcome is predictable, i.e.; India remains a preferred destination for efficient execution, while ownership of core IP and long-term product mandates continues to sit offshore.

Industry leaders increasingly believe this is the inflection point India cannot afford to miss.

Innovation without incentives

“India’s current tax regime largely treats GCC-driven innovation as a routine operating cost,” says Vikram Doshi, Partner and Leader – GCC Tax at PwC India. “This reduces the fiscal motivation for multinationals to locate core product engineering or IP ownership in India. Introducing weighted R&D deductions, say 150 to 200 percent of qualifying spend, along with accelerated depreciation on R&D capital could significantly lower the after-tax cost of innovation.”

The implication, Doshi argues, goes beyond balance sheets. Such measures could encourage multinational companies to move away from cost-plus delivery models towards co-development structures, where Indian GCCs take on greater risk, responsibility, and even co-ownership of IP, something that remains rare today.

This approach is well-tested globally. Competing GCC destinations such as Singapore, Ireland, and Israel have long deployed aggressive R&D tax credits, patent box regimes, and upfront expensing of innovation infrastructure to attract IP-heavy mandates. In Ireland, for instance, effective R&D incentives can reduce the after-tax cost of innovation by over 30 percent, often a decisive factor in IP location decisions. By contrast, India’s GCC tax framework continues to reward efficiency far more than invention.

From cost centres to value engines

The absence of targeted national tax incentives, experts say, directly shapes how global headquarters assess India’s role in long-term product strategy.

“R&D is increasingly being recognised as a growth engine, and India’s evolving policy direction, such as the recently introduced Research, Development and Innovation scheme, signals a shift towards innovation-led value creation,” says Manisha Gupta, Partner at Deloitte India. “However, targeted tax incentives would be transformative. They would improve cash flows for capital-intensive engineering labs, data centres, and advanced digital infrastructure, fundamentally changing how GCCs are perceived within global organisations.”

Deloitte’s research indicates that R&D intensity rises sharply in jurisdictions where fiscal policy explicitly rewards innovation outcomes, not just employment creation. Industry leaders argue that a national framework supporting both CAPEX and OPEX would be far more effective than the current patchwork of state-level GCC incentives in anchoring global product mandates and IP creation in India.

The Government’s caution

Policymakers, however, have historically approached R&D-linked tax incentives with caution. Earlier weighted deduction regimes were rolled back amid concerns over inflated claims, weak auditability, and limited linkage between tax benefits and genuine IP creation or commercialisation. There is also an underlying concern around revenue leakage and the risk of incentive arbitrage.

Officials have therefore increasingly favoured targeted schemes tied to measurable outcomes, such as patent filings, technology commercialisation, and domestic IP ownership, rather than broad-based tax concessions. Any revival of weighted deductions, experts acknowledge, would need to be tightly designed, digitally monitored, and outcome-linked to avoid past pitfalls.

Beyond tax incentives, industry leaders emphasise the importance of predictability and ease of doing business for innovation-led GCCs. “For advanced technology and engineering-focused GCCs, speed, certainty, and regulatory simplicity matter as much as incentives,” says Dhaval Radia, CFO of ZEISS India, adding that rationalised transfer pricing, simplified compliance, and clearer import frameworks are critical to supporting high-value mandates such as AI, deep tech, and R&D.

A signal to global HQs

Despite these concerns, industry leaders argue that well-calibrated incentives could serve as powerful signalling tools.

“India’s tax framework still views GCC innovation outlays as operational expenses rather than strategic investments that influence global mandate allocation,” says Ritika Loganey Gupta, Partner and GCC Sector Tax Leader at EY India. “Well-designed incentives such as weighted R&D deductions and accelerated depreciation can materially change the economics of building core engineering and IP-led capabilities in India.”

The signal to multinational boards would be unambiguous. India is not just a high-quality delivery location, but a viable hub for platforms, products, and intellectual property. Over time, this could shift global decision-making away from cost arbitrage towards capability creation, embedding India deeper into global innovation value chains.

Cash flow, competitiveness, and mandate shifts

From an operator’s perspective, the benefits are equally tangible. Sachin Agarwal, CFO of Hexagon R&D India, believes tax reform could directly influence where future product mandates are housed.

“Reintroducing weighted R&D deductions and offering accelerated depreciation on innovation-linked capital investments would lower the effective cost of R&D and improve cash flows,” he says. “This would make India significantly more competitive with markets like Singapore and China, while shortening payback periods for high-end R&D infrastructure.”

With Budget FY26 expected to consider targeted innovation incentives, Agarwal sees growing alignment between policymakers and industry on recognising GCCs as strategic engines of IP creation, rather than merely cost-efficient extensions of headquarters.

Towards a circular innovation economy

Beyond deductions and depreciation, some leaders argue that India must rethink how reinvestment within GCCs is treated under the tax framework.

Dr. Durga Prakash Devarakonda, Head of Technology – Global Offices at McDonald’s, advocates a reinvestment-driven innovation loop. “Most GCCs operate under transfer pricing margins. If profits generated in India are reinvested into R&D, startup collaboration, or academic partnerships, that reinvested amount should be exempt from taxable income,” he says.

Such a model could create a circular innovation economy, encouraging GCCs to fund startups, collaborate with national institutes of importance, and co-create IP with Indian ecosystems. Structured correctly, this approach could complement weighted deductions by ensuring innovation capital is continuously recycled into India’s broader technology ecosystem.

Aligning with India’s digital ambition

At a macro level, the stakes are clear. India aspires to become a high-value, knowledge-driven digital economy, not merely the world’s back office. GCCs, already deeply embedded within global enterprises, are uniquely positioned to accelerate that transition. But without fiscal recognition of innovation, India risks remaining trapped in a cost-optimisation paradigm even as capabilities mature.

Introducing 150–200 percent weighted R&D deductions, accelerated depreciation for digital and AI infrastructure, and outcome-linked reinvestment exemptions would not merely improve corporate balance sheets. These measures could reshape global mandate decisions, increase R&D-to-revenue ratios, and boost IP-led exports, moving India decisively up the global value chain.

As Budget FY26 approaches, the question before policymakers is no longer whether GCCs can innovate from India, but whether India’s tax framework is ready to let them own that innovation.