[1] Background & Legal Framework
A Decade of Litigation — Finally Resolved
The concept of “intermediary” in Indian indirect tax law was first introduced under Rule 9(c) of the Place of Provision of Service Rules, 2012, under the erstwhile Service Tax regime. When the Goods and Services Tax (GST) was enacted in 2017, both the definition and the controversial place of supply rule were carried forward into the IGST Act, 2017.
Under Section 13(8)(b) of the IGST Act, 2017, the place of supply of intermediary services was deemed to be the location of the supplier — regardless of where the recipient was located. This created a structural anomaly: an Indian broker or agent facilitating transactions for foreign clients was required to charge 18% IGST, making these services ineligible for export benefits. Indian intermediaries were thus rendered globally uncompetitive.
STATUTORY DEFINITION — Section 2(13), IGST Act, 2017
“Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.
The Finance Act, 2026, which received Presidential assent on March 30, 2026, has now omitted Clause (b) of Section 13(8) of the IGST Act, with effect from the same date. The place of supply of intermediary services is now governed by the default rule under Section 13(2) — i.e., the location of the service recipient.
Before vs. After — The Key Change
| BEFORE — Section 13(8)(b) [OMITTED] | AFTER — Section 13(2) [NOW APPLIES] |
| Place of supply of intermediary services = Location of the Supplier (India).
Even where the recipient was located outside India and payment received in foreign exchange, IGST at 18% was payable. Services could not qualify as exports and no refund was available. |
Place of supply of intermediary services = Location of the Recipient.
Where recipient is outside India, the supply now qualifies as zero-rated / export of services. |
CRITICAL NOTE — No Saving Clause
Section 13(8)(b) has been omitted WITHOUT a saving clause. A strong view exists that all past litigations — including demands issued and refunds denied — should be dropped consequentially. However, tax authorities may contest this position and litigation for past periods is expected to continue.
IMPORTANT — Not a Change in Rate of Tax
The amendment to the place of supply provisions does NOT amount to a ‘change in rate of tax’ for the purpose of Section 14 of the CGST Act. Accordingly, the special transitional provisions under Section 14 are not triggered. Taxability of transitional transactions is determined based on the law applicable at the time of supply, in line with the principle upheld by the Supreme Court in Vazir Sultan Tabacco Co. Ltd., 1996 (83) ELT 3 (SC).
[2] Impact on Indian Suppliers — Outbound Intermediary Services
Export Benefits Now Available
For Indian entities acting as brokers, agents, or facilitators providing intermediary services to foreign clients, this amendment is transformative. With effect from March 30, 2026, supplies to recipients outside India shall qualify as zero-rated supplies / export of services, subject to fulfilment of other conditions (e.g., receipt of payment in convertible foreign exchange, filing LUT, etc.), as prescribed under Section 2(6) of the IGST Act
Benefits Available to Indian Intermediary Service Suppliers
- Supply without payment of IGST by furnishing a Letter of Undertaking (LUT) before each financial year
- Alternatively, pay IGST and claim a full refund of IGST so paid
- Input Tax Credit (ITC) on inputs and input services now fully utilizable — no reversal required
- Unlocking of previously blocked refund claims for past periods (subject to litigation risk as ‘no saving clause’ prescribed)
- Indian intermediary sector — particularly IT/ITeS, BPO, KPO, consulting, and logistics — becomes cost-competitive globally
[3] Impact on Indian Recipients — Inbound Intermediary Services (RCM)
A. New RCM Obligation for Indian Businesses Engaging Foreign Intermediaries
The amendment is a double-edged sword. While Indian exporters benefit significantly, Indian entities receiving intermediary services from overseas suppliers now face a new GST liability under the Reverse Charge Mechanism (RCM) on import of services. Prior to the amendment, since the place of supply was outside India (location of the foreign supplier), no IGST was payable in India. Post-amendment, with POS shifting to India (location of the Indian recipient), such transactions now qualify as ‘import of services’, triggering IGST under RCM.
NEW COMPLIANCE OBLIGATION — RCM on Inbound Intermediary Services
Indian businesses engaging foreign agents, brokers, or commission agents (e.g., for marketing, procurement, deal facilitation, or securities) are now required to self-assess and pay IGST under RCM @ 18% on such payments. A self-invoice must be issued under Section 31(3)(f) of the CGST Act, 2017. ITC of GST paid under RCM may be claimed if used for taxable supplies.
B. Invoicing in the Case of Foreign Suppliers
Since the supplier is located outside India, there will be two invoices in cross-border intermediary service transactions: (a) a commercial invoice issued by the foreign supplier, and (b) a self-invoice issued by the registered Indian recipient under Section 31(3)(f) of the CGST Act. For the purpose of determining taxability and availing credit — the date of the self-invoice is the relevant reference point.
[4] Industry Sectors — Impact Analysis
The amendment has far-reaching implications across several sectors that routinely engage in cross-border facilitation arrangements:
|
Sector |
Impact of Amendment |
|
IT / ITeS & BPO / KPO |
Indian tech firms facilitating software deals, process outsourcing, or data services for overseas principals can now claim export benefits. Previously a high-litigation sector — this amendment provides major relief. |
| Consulting & Advisory Firms |
Indian consultants acting as agents or advisors for overseas clients are now able to zero-rate their services. LUT filing enables billing without IGST. |
|
Logistics & Freight Brokers |
Freight forwarding agents and customs brokers acting for foreign clients now qualify for export treatment. A significant cost relief for the logistics sector. |
| Financial Services & Securities |
Sub-brokers, distribution agents, and securities intermediaries facilitating cross-border investment now benefit from the destination-based rule. |
|
Real Estate & Property Agents |
Property agents facilitating NRI buyers or foreign investors will see POS shift outside India, enabling zero-rating subject to conditions. |
| E-Commerce & Platform Operators |
Marketplace operators and aggregators acting as intermediaries between international sellers and Indian buyers must reassess their RCM obligations. |
[5] Related GST Amendments — Finance Act, 2026
The omission of Section 13(8)(b) is part of a broader GST reform package enacted through the Finance Act, 2026, implementing recommendations of the 56th GST Council Meeting (September 3, 2025).
[6] Judicial Precedents & Governing Principles
Vazir Sultan Tabacco Co. Ltd., 1996 (83) ELT 3 (SC)
The Supreme Court in this landmark case established that taxability of a transaction is determined by the law applicable at the time the taxable event occurs. This principle governs the transitional analysis in this alert. Services rendered on or after March 30, 2026 will be governed by the amended law — regardless of when the invoice was issued or payment received.
High Court Decisions on Intermediary Services
Prior to the Finance Act, 2026, multiple High Courts — including the Bombay and Madras High Courts — ruled in favour of taxpayers providing intermediary services to overseas entities. Courts either allowed refunds of GST paid, or remanded matters to tax authorities for fresh consideration, consistently finding Section 13(8)(b) to be in tension with the destination-based principles underlying the GST framework. The Finance Act, 2026 now legislatively resolves these contradictions.
CBIC Circular No. 159/15/2021-GST — Identifying Intermediary Services
CBIC issued Circular No. 159/15/2021-GST to provide comprehensive guidance on identifying intermediary services. The following conditions must be collectively satisfied:
- A tripartite arrangement — at least three distinct parties must exist: two engaged in the principal transaction and one facilitating it
- The intermediary arranges or facilitates the supply — it does not supply the main service on its own account
- Sub-contractors who actually perform any component of the main service are treated as independent service providers, not intermediaries
IMPORTANT — Definition of Intermediary Is Unchanged
The Finance Act, 2026 only amends the place of supply rule. The definition of ‘intermediary’ under Section 2(13) of the IGST Act and CBIC’s guidance on distinguishing intermediary from principal-to-principal supply remain fully operative. Businesses must not assume zero-rating without first confirming they qualify as an ‘intermediary’ under all applicable tests.
[7] Key Action Points for Taxpayers
In light of the amendment and the transitional issues discussed above, taxpayers should take the following steps immediately:
| 01 |
Review all existing agreements with foreign counterparts for intermediary services — both outbound and inbound — to identify the GST impact and restructure contractual terms where required. |
| 02 |
Indian suppliers providing intermediary services to foreign clients: File LUTs for FY 2026-27 immediately and update billing systems to issue invoices without IGST with effect from March 30, 2026. |
| 03 |
Indian recipients engaging foreign intermediaries: Self-assess RCM liability, issue self-invoices under Section 31(3)(f) of the CGST Act, and update accounts payable processes. Verify ITC eligibility on RCM GST paid. |
| 04 |
Evaluate past litigations in light of the omission without a saving clause. Consider filing applications for withdrawal of demands / restoration of refunds, while remaining prepared for authority challenges. |
| 05 |
For transactions spanning March 30, 2026: Carefully determine the applicable place of supply rule based on the date of service rendition and the date of invoice / self-invoice, in line with Vazir Sultan and the transitional matrices in this alert. |
| 06 |
Where ITC of RCM GST is available, conservative RCM compliance remains advisable even for borderline transitional transactions, to avoid future interest and penalty exposure. |
| 07 |
Train accounts and tax teams on new compliance workflows — particularly the LUT filing process, self-invoice generation under RCM, and the revised invoicing format for export of intermediary services. |
| 08 |
Reassess transfer pricing and economic analysis for intermediary arrangements within group structures where the amendment changes the characterisation of supply from taxable to zero-rated, or vice versa. |
[8] Quick Reference — Amendment at a Glance
| Provision Omitted | Section 13(8)(b), Integrated Goods and Services Tax Act, 2017 |
| Effected by | Finance Act, 2026 |
| Presidential Assent | March 30, 2026 |
| Effective Date | March 30, 2026 |
| Old Place of Supply Rule | Section 13(8)(b) of IGST Act – Location of the Supplier (India) |
| New Governing Rule | Section 13(2) of the IGST Act — Location of the Service Recipient |
| GST Rate on Service | 18% (unchanged — only POS rule has changed) |
| Benefit for Exporters | Zero-rated supply / Export of services — LUT or IGST refund |
| New Burden on Recipients | IGST under Reverse Charge Mechanism (RCM) on import of intermediary services |
| Saving Clause | None — omission is unconditional |
| Pending Litigation | Approximately Rs. 3,300 Crore (view: should be dropped; risk: authorities may contest) |
| GST Council Recommendations | 56th GST Council Meeting, September 3, 2025 |
Key Reference Provisions
| Provision | Section |
| Intermediary — Definition | Section 2(13), IGST Act, 2017 |
| Place of Supply — Default Rule (Cross-Border) | Section 13(2), IGST Act, 2017 |
| Place of Supply — Omitted Provision | Section 13(8)(b), IGST Act, 2017 |
| Self-Invoice for RCM (Import of Services) | Section 31(3)(f), CGST Act, 2017 |
| Change in Rate of Tax — Transitional Rules | Section 14, CGST Act, 2017 |
| Refund — General | Section 54, CGST Act, 2017 |
| Provisional Refund | Section 54(6), CGST Act, 2017 |
(Author can be reached at info@a2ztaxcorp.com)
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