Re-Defining Intermediary Services Under GST: A Turning Point for India’s Service Export Economy

India’s Service Export Backbone

India’s service exports have long been a backbone of its economic growth story. From global capability centres (GCCs) to business process outsourcing units, marketing support offices, procurement hubs, and offshore consulting desks, India has built an ecosystem capable of servicing global business functions at scale. Yet, one persistent tax anomaly under the Goods and Services Tax (GST) regime has repeatedly undermined the competitiveness of these service export models: the treatment of intermediary services under Section 13(8)(b) of the IGST Act.

The Problem with Section 13(8)(b): A Structural Disadvantage

For years, this provision mandated that when an Indian entity merely facilitated a transaction between two foreign parties without supplying the main service themselves, the place of supply would be deemed to be India. Even if the overseas recipient paid in foreign currency and consumed the service entirely outside India, the transaction was treated as a domestic supply, thereby attracting GST.

This artificial deeming fiction created a tax cost that the overseas recipient could not recover, as they were not registered in India and therefore could not claim input tax credit. The result: Indian service providers became costlier, less flexible, and tax-disadvantaged compared to competitors in Singapore, Dubai, or the European Union.

Legal Uncertainty and Industry Pushback

The industry has been vocal for years. Law firms, tax practitioners, and trade bodies have repeatedly emphasized that India must adopt a destination-based tax principle, one where tax follows consumption, not performance.

Litigation compounded the uncertainty. More than forty advance rulings since 2018 have attempted to interpret what “arranging or facilitating” truly means. Courts have been divided on whether sourcing support, vendor identification, marketing leads, or customer assistance constitute intermediary services.

The issue reached the Supreme Court in Material Recycling Association of India, where the constitutionality of Section 13(8)(b) was questioned and referred to a larger bench. The ambiguity, both legal and operational, had reached a tipping point.

The Landmark Reform: GST Council’s 56th Meeting

Against this backdrop, the announcement in the 56th GST Council meeting proposing to amend Section 13(8)(b) to shift the place of supply of intermediary services to the location of the recipient represents a landmark policy shift.

Once implemented, intermediary services rendered to foreign clients will be treated as export of services, eligible for zero-rating under GST. For the first time since 2017, the law will recognise the commercial reality that these services are consumed outside India.

Boosting India’s Global Competitiveness

This reform fundamentally alters India’s attractiveness as a global services hub. By eliminating the embedded GST cost, the amendment offers immediate pricing advantage to Indian entities that serve foreign clients.

For multinational companies deciding location of global capability centres or procurement hubs, the tax friction that previously complicated India’s value proposition will finally disappear. The shift is aligned with international tax norms- jurisdictions such as Singapore, the EU, and the UAE already tax services based on the location of the recipient rather than the facilitator. India will now match that standard.

Reduction in Litigation and Compliance Complexity

Beyond competitiveness, the reform also promises to reduce litigation. Businesses will no longer need to structure contracts artificially to escape the “intermediary” label or demonstrate that they acted “on their own account.” The classification debate becomes commercially irrelevant when exports enjoy zero-rating. Tax teams can redirect their focus away from defensive documentation and towards business enablement.

The timing of the reform is particularly significant. As global corporations reassess supply chains and shared-service footprints in the wake of geopolitical realignment, India is aggressively positioning itself as the preferred destination for technology, analytics, remote business support, procurement, and back-office operations. Removing GST from intermediary service exports signals a clarity of intent: India wants to be a cost-efficient, tax-neutral service export hub.

Preparing for the Transition

However, businesses should use this transition period wisely. Contracts should be reviewed to ensure they clearly identify the location of the service recipient, demonstrate that consideration flows from outside India, and establish that the service is utilised outside India.

While the change simplifies taxation, documentary evidence will remain crucial for zero-rating. Tax and legal functions should begin fine-tuning compliance frameworks, especially around invoicing, foreign exchange documentation, and Form LUT procedures.

More Than a Tax Change: A Policy Realignment

In its essence, this amendment is more than a technical correction to tax legislation. It marks a strategic shift in India’s economic policy narrative. By aligning GST with global best practices and eliminating a structural disadvantage, the government has acknowledged the importance of the services sector in driving foreign exchange inflows and employment.

For the first time since GST’s introduction, intermediary services rendered to foreign clients will soon stand on the right side of policy, economics, and legal philosophy. Tax is no longer a deterrent – it becomes a catalyst.

India’s message to global businesses is clear:

If you bring your service mandates to India, tax will no longer stand in the way of efficiency, competitiveness, or growth.