The Indian Outsourcing induslty is moving up the value chain. It is in a state of transition from BPO to KPO. The maturity and evolution of outsourcing strategies is leading businesses to shift towards the off-shoring of high-end processes to low-wage destinations, a trend referred to as KPO. This involves off shoring of knowledge-intensive business processes that require significant domain expertise. The myth that Indian companies can only Provide "Software Coolies " is soon changing to the reality that they are capable of anything, even rocket science! India's intellectual potential is the key factor for India being the favoured destination for KPO industry. In this paper an attempt has been made to focus on the transition of BPO to KPO .India as a preferred destination for KPO services. Indian KPO market and challenges posed to it..