For a single Indian subsidiary serving one foreign principal, a stand-alone intercompany services agreement with an annual pricing schedule is simplest and is what Indian regulators expect to see. Where several group entities buy or sell services to each other, a group master services agreement signed by all participants, with a country schedule for India, keeps terms consistent. Statements of work sit under either and define scope, headcount and deliverables per project. Whatever the structure, Indian law reads the documents together: the party that receives and pays must be identifiable for GST and FEMA, the cost base and markup must be in a signed document for transfer pricing, and each instrument needs section 188 approval and stamping in India.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Contract as transfer pricing documentation | Rule 10D | Rule 84 | Agreements for each international transaction | Contemporaneous | — |
| Recipient of service for GST export test | s. 2(6), 2(93) CGST/IGST Act | Unchanged | Recipient = person liable to pay consideration | — | — |
| Related-party contract approval | s. 188 Companies Act | Unchanged | Each contract or arrangement | Before execution | Board resolution |
| Stamp duty | Indian Stamp Act / state Acts | Unchanged | Per instrument; foreign-executed instruments within 3 months of receipt in India | On execution / receipt | — |
The three structures
1. Stand-alone intercompany services agreement
One agreement between the Indian company and its principal, with a pricing schedule updated annually and, optionally, statements of work for projects. Pros: every regulator finds everything in one document; easy to approve under section 188; one stamp duty; the counterparty is unambiguous. Cons: if the Indian company starts serving a second group entity, a second agreement is needed. This is the right default for a captive with one principal.
2. Group master services agreement with participation (adherence) agreements
A multilateral MSA sets the common terms — services, cost base, markup policy, IP, confidentiality, data protection, termination — and each group entity signs a short participation agreement naming which services it provides and receives and at what markup. Pros: consistency across the group; one set of terms to maintain. Cons: Indian regulators receive a thick global document plus a thin local one, and the local one must by itself answer the Indian questions — recipient, price, currency, true-up. Make sure the India participation agreement does, and that it is approved and stamped in India as a contract in its own right.
3. MSA plus statements of work
The MSA carries the legal terms; each SOW carries scope, team, duration and commercial terms for a project. Common in groups that run project-based engineering. Pros: scope flexibility without re-signing the master. Cons: pricing split across documents — if the SOW states a fixed fee or a day rate, it must reconcile to the cost-plus policy in the MSA and to the margin booked in India. Day-rate SOWs are the most frequent cause of an Indian captive's booked margin bearing no relation to its agreement.
Which to choose
| Situation | Recommended | Why |
|---|---|---|
| One Indian subsidiary, one foreign principal, continuous services | Stand-alone intercompany agreement + annual pricing schedule | Simplest for TP, GST, FEMA and board approval |
| Indian subsidiary serves several group entities | Group MSA + India participation agreement, or separate bilateral agreements | Each recipient must be identified for GST and FEMA; costs allocated by key |
| Project-based work with changing teams | Either of the above + SOWs | Scope flexibility; keep pricing in the master |
| Indian entity both provides and receives services (e.g. receives management services, provides development) | Separate agreements for each direction | Outbound payments trigger withholding (section 393) and GST reverse charge; mixing directions in one document confuses both |
Points that apply to every structure
- The payer is the recipient. GST and FEMA both follow the money. If the MSA is signed by a holding company but a US operating company pays, the US operating company must be a party or named as the recipient.
- Pricing lives in a signed document. A transfer pricing policy PDF on the group intranet is not a contract. The markup and cost base must be in the agreement, schedule or participation agreement.
- Each Indian instrument is approved and stamped. The MSA, the participation agreement and each SOW are contracts; section 188 approval can be given for the framework with authority delegated for SOWs within stated parameters, but the minutes must say so.
- Do not mix directions. Services the Indian company buys from the group (management fees, software licences) go in a separate agreement because they trigger withholding, Forms 145/146 and GST reverse charge.
Worked example
A German group has an Indian subsidiary that develops software for the German parent and provides second-line support to the group's US and UK sales companies. The group signs a global MSA; India signs a participation agreement listing three recipients (DE, US, UK) with a cost allocation key based on time records and a 16% markup. Each recipient is invoiced monthly in its own currency; the LUT covers all three export streams; three sets of export invoices are reconciled to three inward remittance lines at the bank. The Indian board approves the participation agreement under section 188 and delegates authority to the managing director to sign SOWs up to a stated headcount under it. Form 48 reports three international transactions, one per recipient.
Common mistakes we see
- Relying on a global MSA signed by the group holding company when a different group entity pays the Indian invoices.
- Putting day rates or fixed fees in SOWs that do not reconcile to the cost-plus policy in the master, so the Indian booked margin is accidental.
- Using one agreement for services flowing both ways, which muddles the withholding and GST reverse-charge analysis on the outbound leg.
- Approving the MSA under section 188 but never approving the India participation agreement or the SOWs that actually set the price.
- Not stamping the participation agreement in India because 'the MSA was stamped abroad'.
Frequently asked questions
Is a group MSA enough for Indian compliance?
Only if the India-specific instrument under it (participation agreement or schedule) identifies the recipient, the services, the cost base, the markup, the currency and the true-up, and is itself approved under section 188 and stamped in India.
Can SOWs set the price?
They can set scope and headcount. Pricing should remain governed by the master's cost-plus policy so that the booked margin matches the transfer pricing position. A day rate in an SOW must reconcile to cost plus the agreed markup.
Do we need a separate agreement for services the Indian company receives from the parent?
Yes. Inbound services trigger withholding under section 393, Forms 145/146 and GST reverse charge; keep them out of the outbound services agreement.
Who signs the participation agreement for India?
An authorised director of the Indian company, after board approval under section 188 with interested directors abstaining and disclosure under section 184.
Can one LUT cover exports to several group recipients?
Yes. The LUT is given by the exporter for the financial year and covers all its zero-rated supplies without payment of tax.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- CGST Act, IGST Act, CGST Rules and GST circulars — CBIC
- Companies Act, 2013 and rules — Ministry of Corporate Affairs
Last reviewed on 1 November 2026 by Vidushi Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
