US to India · Software delivery and transfer pricing
Indian Subsidiary Providing Software Development Services to a US Parent
Prepared by AU Corporate's CA-led advisory team · Published 14 October 2026 · General information; confirm the current rules and transaction facts.
A US technology company may establish an Indian subsidiary to develop, maintain, test or support software for its group. Incorporation is only one part of the setup. The operating model should explain what the Indian team does, who controls product decisions and risks, how the company is paid, who owns the resulting intellectual property and how cross-border services are documented and reported.
Quick answer
What should a US company plan before its Indian team starts software delivery?
Document the service scope and responsibilities, determine the Indian subsidiary’s functional and risk profile, support related-party pricing with an appropriate transfer-pricing analysis, agree intellectual-property ownership, review GST export conditions and retain consistent contracts, invoices and delivery evidence.
1. Define the delivery model and functions
List the work performed in India: application development, maintenance, quality assurance, product support, DevOps, cybersecurity, user documentation or technical support. Identify who sets the product roadmap, approves architecture, owns customer relationships, funds development and makes decisions about material risks. Actual conduct matters alongside the written agreement.
Do not assume every technology subsidiary is a low-risk service provider. A team that controls important product decisions, owns valuable intangibles or bears meaningful commercial risks may need a different functional analysis from a team carrying out defined tasks under close direction.
2. Put the intercompany services agreement in place
The agreement should describe deliverables, service levels, personnel responsibilities, billing currency and frequency, expense treatment, change control, confidentiality, security, audit rights and termination. It should match how the teams actually work. Retain statements of work and evidence of delivery rather than relying only on a broad “software services” clause.
3. Support the transfer-pricing position
Services between associated enterprises can fall within India’s international-transaction and transfer-pricing framework. Select a method based on the facts and available comparables. Support the tested party and functional analysis, cost base, allocation of shared expenses, mark-up and any year-end adjustment. The Income Tax Department’s transfer-pricing guidance describes the broad framework and relevant transaction categories.
Safe-harbour provisions, where available, have eligibility conditions and can change. Do not copy a margin from an old article or assume a safe harbour applies without checking the rules for the relevant year and transaction.
4. Agree who owns code, inventions and improvements
Specify the treatment of pre-existing IP, newly developed source code, documentation, inventions, open-source components, third-party tools, derivative works and improvements. Address assignment or licensing, employee and contractor invention clauses, confidentiality and access after termination. The contract should reflect the actual development and control of valuable intangibles.
If the Indian subsidiary uses software, trademarks or know-how owned by the US parent, analyse that licence separately. Do not bundle a royalty, development fee and management charge together without documenting what each payment is for.
5. Review GST and export-of-services conditions
Services billed to a US parent may be treated as exports only if the applicable statutory conditions are satisfied on the facts. Review supplier and recipient status, place of supply, payment and foreign-exchange requirements, any intermediary issue, invoicing, returns and the appropriate route for claiming zero-rated treatment. A foreign customer alone does not settle the GST analysis.
6. Maintain evidence through the year
- Intercompany agreement, statements of work and approved pricing model.
- Project plans, tickets, timesheets or other proportionate evidence of work delivered.
- Functional analysis, cost-pool workings, allocation keys and transfer-pricing support.
- IP assignments, licence terms, contractor agreements and open-source controls.
- Invoices, remittance evidence, GST records and ledger reconciliations.
- Year-end review of related-party disclosures and applicable tax reporting.
7. Connect the setup to the wider India compliance plan
Plan payroll, employment contracts, data security, statutory books, audit and annual filings alongside the service model. If the Indian company also sells to third-party customers or licenses its own products, reassess whether one transfer-pricing profile still describes all its activities.
Related reading: setting up an Indian subsidiary for a US SaaS company, management fees from a US parent and GST compliance for an Indian subsidiary.
Frequently asked questions
Can an Indian subsidiary provide software development services to its US parent?
Yes, subject to the business structure and applicable law. The parties should document the services, responsibilities, pricing, intellectual-property terms, tax treatment and actual operating arrangement.
How should software development fees be priced?
Related-party service fees generally need an arm’s-length analysis under applicable Indian transfer-pricing rules. The method and evidence depend on functions performed, assets used, risks assumed and reliable comparable data.
Does the Indian company automatically own the software it develops?
Not automatically. Ownership and usage rights depend on applicable law and the contractual terms, including the treatment of source code, inventions, improvements and pre-existing intellectual property.
Can an Indian subsidiary use a cost-plus model?
A cost-plus approach may be considered where appropriate, but the cost base, mark-up, functional profile and comparability must be supported. A familiar industry percentage is not proof that a price is arm’s length.
What tax issues should be reviewed on services billed to the US parent?
Review transfer pricing, GST export-of-services conditions, invoicing and foreign-exchange records, income-tax reporting and the facts relevant to any treaty or permanent-establishment question.
This guide provides general information, not legal or tax advice for a specific arrangement. Confirm the current law, transaction documents and facts with qualified advisers before implementation.