Most India-incorporated SaaS companies 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 fully-loaded cost. Get the markup right and you sail through. Get it wrong and you face TP adjustments that can wipe out an entire year's R&D credit.
The cost-plus benchmark
ITeS / contract-software-development entities are benchmarked using TNMM (Transactional Net Margin Method) against comparable Indian SaaS-services companies. Markups in the 15–20% range over fully-loaded cost (including ESOPs, leave encashment and gratuity) are defensible. Markups below 12% almost guarantee a TP adjustment notice.
Safe harbour as a shortcut
For Indian contract software development services up to ₹200 Cr in revenue, the safe-harbour rule offers a fixed 17% (up to ₹100 Cr) or 18% (₹100–200 Cr) markup that the tax department won't challenge. The trade-off: you forgo the ability to use TNMM if you have a genuinely lower margin, and the election is binding for 5 years.
Master File and CbC reporting
Master File (Form 3CEAA) applies if your consolidated group revenue exceeds ₹500 Cr. Country-by-Country reporting (Form 3CEAD) applies at ₹64 billion consolidated revenue — typically only late-stage SaaS at IPO scale. But Local File (Form 3CEB) applies to every Indian entity with international transactions above ₹1 Cr, regardless of group size.
About the author
Sandeep Iyer, CA
Partner, International Tax at Regikart. Want to discuss this in the context of your business?
