Indian companies that provide support “intermediary services”, such as BPO and sales, to foreign clients could now save big on taxes. Thanks to an amendment in the Finance Act 2026, which now states that the place of supply for intermediary services shall be “the location of the recipient of such services.”.
Due to this intermediary service are finally officially recognized as exports, allowing businesses to claim GST refunds on services provided for customers abroad. As per tax consultants, the tweak in the law will free-up Rs 4,000 crore stuck in litigation.
“Intermediary” means agents or brokers arranging or facilitating supply of goods or services between two parties. Back-office support executives, sales and travel agents are all providers of intermediary services to foreign customers.
Several IT companies, including Genpact India, had to approach High Courts to take a relief from authorities’ ambiguous interpretation of law, in spite of having circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) to support the export status for the BPO industry.
Specifically, in November 2022, companies led by Genpact and Ernst & Young (EY) had approached the Punjab & Haryana and Delhi High Courts challenging the rejection of their GST refund claims and urging for an export status to the IT-enabled services (ITeS) sector, which employs over 5.4 million Indians.
“The amendment primarily benefits IT/ITeS companies, marketing firms, and businesses providing intermediary or sourcing services to overseas clients, as it ensures their cross-border services are correctly recognized as exports for GST purposes,” an tax expert said.
What did the Finance Act 2026 change?
Until now, when an Indian intermediary supplied service to an overseas customer, such services attracted GST due to place of supply being mapped with respect to location of the supplier (in this case, being in India). Now, the place of supply is tweaked to be the location of the customer.
The Finance Act 2026 changed Section 13(8) of the IGST Act. Through this the place of supply for intermediary services would be determined basis the customer’s location. Therefore, such services rendered by Indian intermediaries to overseas customers can now qualify as ‘zero‑rated exports’ with refund eligibility – which was not the case before.
Tax consultants say that treatment of a service as intermediary service or otherwise has been a major area of litigation, as authorities often tried to reclassify several service contracts, largely BPO, as intermediary services to resulting into denial of export status and refunds.
“In practice, genuine cross-border service arrangements were often re characterised as ‘intermediary’ services, leading to denial of export benefits. This created a layer of uncertainty for businesses operating in global service models, with disputes arising not just on interpretation of law, but also on the nature of underlying transactions,” another tax expert said.
“Though efforts were made by the government by issuance of clarification as to what constitutes an intermediary or otherwise, litigation on this issue has continued over the years and the amendment in Section 13 comes as a big relief at a time when geopolitical conditions are not too conducive for businesses,” another tax expert said.
