Relief for Intermediary Services in GST

Under Section 2(13) of the Integrated Goods and Services Tax (IGST) Act, “intermediary” means a broker or an agent, generally a middleman who arranges, facilitates the supply of goods and services, or often both, between two or more parties.

Generally, this does not include a person who supplies such goods, services, or both to their account.

In simple terms, any person who facilitates the supply of goods and services between two people is an intermediary.

Examples of Intermediary services

• BPOs facilitate sales between foreign firms and Indian buyers. 
• Consultants connecting overseas businesses with Indian service providers. 
• Agents earn commission on international deals.

Example: 
According to government information services provided by education consultants to foreign universities, which qualify as export of services and are abated from GST as intermediary services.

Potential GST Relief for intermediary services

The GST council has delivered a long-awaited relief to India’s intermediary services sectors. According to the recent media and news reports, the 56th GST Council is actively considering the granting of “export” status to all intermediary services, a move to eliminate the 18% GST burden on such transactions. If intermediary services are classified as exports, these services will become “zero-rated” under GST.  

Zero-Rated Status under section 18 of the IGST Act 

• No 18% output tax liability
• Refund of Input Tax Credit (ITC)
• Growth of India’s service ecosystem and startup ecosystems.

Current GST Treatment of Intermediary Services

Currently, the intermediary services are taxed at 18%, even if the recipient is outside India. This is mainly due to the reason that these services still don’t qualify as exports under the existing GST guidelines.

For a service to qualify as an export, the following criteria must be met:

• The service provider must be located in India.
• The service receiver must be located outside India.
• The place of supply must be outside India. 
• Payment must be received in convertible foreign exchange.
• The service provider and the service receiver must not be establishments of distinct persons.

Current GST Treatment for Intermediary Services

Prior to the recent changes, GST imposed on the intermediary services was a major point of contention and litigation. According to Section 13(8)(b) of the IGST Act, the “place of supply” for intermediary services was considered to be the location of the service provider. This had significant consequences :

Taxability: Even if the recipient of the services was located outside India, the services were not classified as “export”. Instead, it was considered a domestic national supply and was considered under the 18% GST slab.

No Export Benefits: It was not considered an “export”; the service provider was not eligible for “zero-rated” benefits. This precisely meant that there was no provision of GST Refund on their input, leading to a huge blockage of working capital.

Provisional Refund Mechanism for Zero-Rated Supply

The GST framework provides for a provisional refund of  90% of the total refund claim for zero-rated supplies, like exports and supplies to SEZ Units. The provisional refund is granted quickly after a system-driven risk evaluation to prevent any potential fraud while ensuring genuine exporters receive their funds promptly.

Provisional Refunds under Inverted Duty Structure (IDS)

Businesses with an Inverted Duty Structure (IDS), where the input rate is higher than the output rate, can avail a provisional refund of 90% of their claims.

GST Refunds for Low-Value Export Consignments

The GST council has approved removing the value threshold for GST refunds on Low-Value Export Consignments to help e-commerce and small support exporters grow.

Exporting goods? You might be missing out on your GST Refund.
Discover how to claim it - contact us or visit: Export GST Refund Service.

Why is this important?

As these intermediary services have no “export status,” they are not zero-rated, and thus these services become ineligible for refund of Input Tax Credit (ITC). No GST Refund, along with no refund of ITC, makes Indian intermediaries globally uncompetitive, leading to tax-cascading on international service flows.

Thus, reforming and amending this status clinically calls for recognition of these major problems, and this solves the problem at the root.

The Legal and Policy Basis: K.S. Judgment and GST Alignment

Overseas Education Consultants and "Export of Services"

The Supreme Court recently upheld the Bombay High Court's ruling that services provided by Overseas Education Consultants to foreign universities qualify as "export of services" under the IGST Act, 2017. 

The Department had argued these services were "intermediary" services, but the courts disagreed, citing prior decisions under the Service Tax regime. 

Education consultants can now consider claiming refunds for any GST paid, though upcoming amendments in the 56th GST Council meeting may further clarify the issue.

Practical Impacts and Benefits of Business

Support for small exporters: The removal of the value threshold for GST refunds on low-value export consignments is a major boost for e-commerce and small businesses.

Enhanced Competitiveness: The removal of GST on intermediary services to foreign clients makes Indian service providers more globally competitive by eliminating a significant tax burden.

Improved Cash Flow : Businesses will no longer have a capital blockage in paying 18% GST on services that are effectively exports, thereby freeing up working capital.

Reduced Export Process: The new provisional refund mechanism allows exporters to receive 90%  of their refund claims quickly, easing liquidity pressure.

Simplified Export Reports: The new provisional refund mechanism allows exporters to receive 90% of their refund claims quickly, easing liquidity pressures.

What Should Businesses Do Now?

Businesses should consult with tax experts who can effortlessly manage reclassification and refund claims.

Here it is, where MYGST Refund comes into action, expert-driven, seamless, and transparent services at your fingertips in very reasonable rates.

Incredible, fast, seamless, cost-effective one-stop solutions for every mechanism related to GST services for intermediary services.

Conclusion

The recent GST council decisions represent a significant, fast, and forward-looking reform for India’s service sector, particularly ITs and Information Technology Enabled Services (ITeS). By posing the “export status”, an incredible opportunity related to better competitiveness, efficient business dynamics, and better capital handling is unlocked.

Frequently Asked Questions (FAQs)

What is 0.1% GST for export?
Concessional GST for merchant exporters.

What recent change did the GST Council make regarding intermediary services?
Classified intermediary services as “exports, “giving a zero-rated category.

What benefits does the new GST interpretation offer for intermediary businesses?
Removes tax burden, allows for GST refund on inputs

Who benefits from this change?
IT, ITeS, Global Capability Centers, Small exporters.

How can I contact the GST refund team for assistance?
Consider the MYGST Refund platform for expert guidance and support.