India’s indirect tax regime – both GST and erstwhile Service tax has long treated intermediary services in cross‑border settings as taxable in India, disqualifying export benefit for Indian service providers even when services were rendered and consumed offshore. In a significant GST overhaul, the government now proposes to change this tax position and provide intermediary services its deserved status of export. Once effective, the change would reframe exports and imports of intermediary services.

Intermediary is defined under GST law as a broker, agent, or other person who arranges or facilitates a supply of goods or services between two or more persons, excluding those supplying on their own account. Export of services under GST requires, among other conditions, that the place of supply should be outside India. Section 13(8)(b) of IGST Act deems the place of supply for intermediary services to be the ‘location of supplier’. As a result, Indian-origin entities, Indian counterparts of foreign groups, and many Global Capability Centres (GCCs) rendering facilitative services to non-resident affiliates charge domestic GST on invoice value of supply. This GST charged is not available as input credit for the foreign recipient—creating a tax cost and competitive disadvantage. The definition of ‘intermediary’ also generated persistent classification disputes about what constitutes “own account” supply versus facilitation, despite clarificatory circulars.

The proposal would omit Section 13(8)(b), causing the place of supply for intermediary services to be determined under Section 13(2) of the IGST Act, which is the recipient’s location (default section). Post the amendment, for supplies by Indian intermediaries to foreign recipients, the place of supply would be outside India. Subject to the other export of services conditions being satisfied, such supplies would be zero‑rated under Section 16 of the IGST Act and, accordingly, not applicable to GST.

• Zero‑rating of outbound intermediary services removes Indian GST from cross‑border consideration received by Indian entities, improving margins and pricing clarity.

• Refunds of accumulated GST input tax credit (ITC) become available to Indian service providers when exporting without payment under a bond or LUT, enhancing liquidity.

• Greater alignment with destination‑based VAT principles which reduces structural incentives to operate from outside India, supporting the GCC ecosystem in India.

With place of supply shifting to the recipient’s location, intermediary services supplied by a non‑resident to an Indian recipient satisfy the conditions of for ‘import of services’ under Section 2(11) of the IGST Act, which requires the supplier to be located outside India, recipient in India and place of supply in India.

Reverse charge liability: As a result, IGST becomes payable by the Indian recipient in case of procurement of services from outside India. Prior to the proposed amendment, inbound arrangements in relation to intermediary services were outside Indian GST because the place of supply was abroad i.e. location of supplier.

Impact on cash flow and GST credit: GST under RCM is to be paid in cash initially, though ITC is available subject to conditions. However, this will lead to significant cash flow blockage. Further, businesses with exempt or mixed supplies must consider proportionate reversals, raising the risk of ITC accumulation.

Registration and compliance requirements: For entities which were not registered under GST and procuring services from outside India in relation to intermediary services, may now be required to re-evaluate their tax position, also considering the threshold for registration under GST.

The proposed change will be brought in by an amendment in the IGST Act, 2017. In the past, generally, such amendments have been undertaken at the time of Union Budget announcements.

Taxpayers should segment contracts and invoices to distinguish pre and post amendment tax positions, documentation, and consideration receipt. Review of intercompany and vendor contracts to allocate reverse charge exposure should also be undertaken. Entities should prepare appropriate export documentation and LUT processes (for export without payment of GST) and model working capital impacts from reverse charge and potential ITC accumulation perspective.

The proposed amendment will impact all service providers rendering services as a broker, agent, any other person, facilitating supply of goods or services between persons. This may specially include shipping, airline and insurance agents, back-office functions, GCCs, marketing agencies etc.

Omitting Section 13(8)(b) of IGST Act for intermediary services is a welcome move, which would realign GST with the destination principle, unlock zero‑rating for Indian intermediaries, and remove non‑creditable tax costs for foreign recipients. The offset is a reverse charge burden on inbound procurement of services, with cash‑flow, registration, and compliance consequences. If enacted as anticipated, the reform will materially improve competitiveness for Indian service exporters while demanding disciplined readiness for reverse charge on imports of intermediary services.

About the authors: Stella Joseph is a Partner and Yash K Desai is a Principal Associate at Economic Laws Practice.

The above article does not constitute legal advice and the views expressed herein are personal views of the authors.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

If you would like your Deals, Columns, Press Releases to be published on Bar & Bench, please fill in the form available here.