GCC vs Offshore: Which Model Is Right for Your Company?

A captive GCC is a wholly-owned Indian subsidiary of the foreign parent, staffed by employees on the India entity's payroll, operating exclusively (or primarily) for the parent group. The India entity invoices the parent for services at an arm's-length transfer price. All IP, code, data, and processes belong to the group.

A third-party offshore arrangement contracts with an Indian IT or BPO firm to deliver services. The parent has no equity in the vendor, no employment relationship with the people doing the work, and relies on contractual protections (SLAs, IP assignment, confidentiality) rather than ownership. Cost is typically lower in year one; control is permanently lower.

A Build-Operate-Transfer (BOT) is a hybrid. A specialized India partner incorporates the entity, hires the team, and operates the GCC on the parent's behalf for a defined period (typically 18-36 months). At the end of that period, the parent purchases the entity and team at an agreed price, converting it to a fully captive model.

Choose captive GCC when: (a) your target India headcount is 60+ FTE within 24 months, (b) the work involves core IP, source code, or sensitive customer data, (c) you have internal bandwidth to manage a subsidiary - finance, legal, HR, and IT overhead. The fixed cost of running an Indian subsidiary (compliance, audit, CA, CS fees, director fees) is approximately INR 20-35 lakh per year before any operational costs.

Choose third-party offshore when: (a) you need delivery in under 60 days, (b) the work is truly commodity and vendor SLAs are measurable, (c) headcount will stay below 30 FTE. The risk is talent ownership: your best performers are employees of the vendor, not you, and can be pulled to other client work.

Choose BOT when: (a) you want captive outcomes but lack the internal India expertise to set it up, (b) you are willing to pay a 15-25% premium over pure captive cost in exchange for the partner absorbing the setup risk, (c) you have a 24-36 month commitment to see it through. Many BOT arrangements fail at transfer because the parent underestimates the transition cost.

In a captive model, IP created by Indian employees during employment belongs to the employer (the Indian entity) by default under Indian copyright law, unless explicitly assigned to the parent in the employment contract. Indian entities should have IP assignment clauses in every employment contract that assign all work product to the parent group entity.

In a third-party offshore arrangement, the vendor's employees create work product owned by the vendor unless the MSA contains a present-tense IP assignment ('Vendor hereby assigns and transfers all IP...'). Future-tense assignment clauses ('Vendor agrees to assign...') can be challenged. Review your existing offshore MSAs carefully.

Data governance under India's DPDP Act 2023 adds another layer: personal data processed in India is subject to DPDP regardless of whether the processor is captive or third-party. Your Data Processing Agreement with an offshore vendor must now comply with DPDP requirements, including purpose limitation and data principal rights obligations.

Regardless of which model you choose, if the India entity transacts with a related party (parent, affiliate), the transaction must be priced at arm's length under Section 92 of the Income Tax Act 1961. The most common method for GCC service billing is the Transactional Net Margin Method (TNMM), which benchmarks the India entity's net margin against comparable independent service providers.

For third-party offshore, transfer pricing does not apply (you are not a related party to the vendor). But for captive GCCs and for BOT arrangements during the captive phase, Form 3CEB must be filed with the income tax return. The deadline is 31 October of the assessment year (extended to 30 November if international transactions exceed INR 1 crore).