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GST and Exports

GST on Export of Services After the Finance Act 2026 Intermediary Change

By Alok Shah 24 October 2026 9 min read

From 30 March 2026, intermediary services supplied by an Indian business to a client outside India can qualify as export of services. Section 157 of the Finance Act, 2026 omitted clause (b) of section 13(8) of the IGST Act. That clause had fixed the place of supply of intermediary services at the supplier's location. Without it, the default rule in section 13(2) applies, and the place of supply is the recipient's location. Where the five conditions of section 2(6) are met, the supply is an export and is zero-rated under section 16. The change also works the other way: Indian businesses that pay foreign intermediaries now have an import of services, with IGST payable under reverse charge.

This post sets out what the old rule did, what changed and from when, and the practical steps for both sides.

What the old rule did

Section 2(13) of the IGST Act defines an intermediary as a broker, agent or any other person who arranges or facilitates a supply of goods, services or securities between two or more persons. It excludes a person who supplies on their own account.

Until 29 March 2026, section 13(8)(b) placed the supply of intermediary services at the location of the supplier. For an Indian agent working for a foreign principal, the place of supply was therefore in India. The service failed condition (iii) of section 2(6), that the place of supply must be outside India, even though the client was abroad and paid in foreign currency. Because supplier and place of supply were in the same State, the service was usually taxed as an intra-State supply with CGST and SGST.

The practical damage came from classification disputes. CBIC Circular No. 159/15/2021-GST (20 September 2021) explained the scope of "intermediary". Even so, businesses offering back-office, marketing support, sourcing or business development services to foreign group companies or clients regularly faced refund rejections and demands on the ground that they were intermediaries.

What changed, and from when

Section 157 of the Finance Act, 2026 (No. 4 of 2026) reads: "In section 13 of the Integrated Goods and Services Tax Act, 2017, in sub-section (8), clause (b) shall be omitted."

The Act received Presidential assent on 30 March 2026. Section 1(2) of the Act lists the provisions that come into force on 1 April 2026 or on a notified date, and section 157 is not among them. It therefore took effect on the date of assent, 30 March 2026. The ICSI's December 2026 study supplement records the same date.

Three points follow.

  • The definition has not changed. Section 2(13) still defines an intermediary. Classification now matters far less for exporters, because the place of supply follows the general rule either way.
  • The default rule has its own limits. Section 13(2) places supply at the recipient's location, but where that location is not available in the ordinary course of business, it falls back to the supplier's location. The other specific rules in section 13 still apply where the facts fit them. Keep the client's overseas address and contract on file.
  • The change is prospective. Supplies made before 30 March 2026 remain under the old provision. Pending refund claims, show cause notices and appeals for earlier periods continue on their own facts and the case law. They are not closed by the amendment. For those periods the live question is usually whether the supplier was an intermediary at all. In Union of India v. KC Overseas Education Pvt. Ltd. (2025) the Supreme Court dismissed the revenue's appeal and upheld the Bombay High Court, where a supplier acting on its own account on a principal-to-principal basis, paid in convertible foreign exchange, was treated as making an export under the default rule and allowed its refund. That judgment goes to the nature of the service, not to the date the omission takes effect, so it does not make the amendment retrospective.

Does your service now qualify as an export?

Removing section 13(8)(b) fixes condition (iii) only. All five conditions of section 2(6) must still be met:

  1. The supplier is located in India.
  2. The recipient is located outside India.
  3. The place of supply is outside India.
  4. Payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by the Reserve Bank of India.
  5. The supplier and recipient are not merely establishments of a distinct person under Explanation 1 to section 8.

Two of these conditions catch businesses out.

  • Condition (iv), payment. Under CBIC Circular No. 202/14/2023-GST (27 October 2023), INR receipts through Special Rupee Vostro Accounts under RBI's July 2022 framework satisfy this condition. Other rupee receipts qualify only where RBI permits them, so check the route with your bank before accepting rupees. Keep the bank advice and FIRC or e-BRC for every receipt.
  • Condition (v), distinct persons. CBIC Circular No. 161/17/2021-GST (20 September 2021) clarifies that an Indian company and its foreign parent or subsidiary are separate legal persons, so supplies between them can be exports. A branch or liaison-type office in India of a foreign company is different. Supplies between it and the foreign company's establishments abroad are between establishments of a distinct person and cannot be exports.

What exporters should do now

  • Move the invoicing. For supplies on or after 30 March 2026, stop charging CGST and SGST on qualifying services. Raise export invoices and report them as exports in GSTR-1.
  • Put a Letter of Undertaking in place. Under section 16(3), a zero-rated supply can be made without paying IGST under a bond or a Letter of Undertaking in Form GST RFD-11, which is furnished for each financial year. A business that previously paid tax on these services may never have filed one. File it before the next export invoice.
  • Or pay IGST and claim it back. Section 16(4) allows notified classes to export on payment of IGST and claim a refund. Notification No. 01/2023-Integrated Tax covers services generally from 1 October 2023. The LUT route is usually simpler for a services business, because it avoids paying tax and waiting for it to come back.
  • Plan for accumulated credit. Once the main output is zero-rated, input tax credit on rent, software, professional fees and other costs builds up. Refund of unutilised credit is available under section 54(3) of the CGST Act, read with Rule 89 of the CGST Rules. Start organising the documents from the first month, not at the end of the year.
  • Review contracts that straddle the date. The Act has no transitional provision for supplies in progress on 30 March 2026, such as continuous retainers, or advance invoices raised before the date for work done after it. Fix the treatment by reference to the time of supply under section 13 of the CGST Act, document the position, and take advice where the amounts are significant.
  • Check pricing clauses. Contracts priced "plus GST" for foreign clients may need revising. A client that had been absorbing Indian GST will expect the saving to show in the invoice.

The other side: foreign intermediaries are now an import

The same omission moves the place of supply of inbound intermediary services into India. An Indian business that pays a foreign agent now receives an import of services. Under section 5(3) of the IGST Act, read with Serial No. 1 of Notification No. 10/2017-Integrated Tax (Rate), the Indian recipient pays IGST under reverse charge.

Typical cases are commission paid by Indian goods exporters to overseas sales agents, fees to foreign sourcing or buying agents, and payments to overseas brokers who arrange contracts. These were previously outside the GST net because the place of supply was the agent's location abroad.

  • Identify the payments. Run the foreign vendor ledger from 30 March 2026 for commission, brokerage and facilitation fees.
  • Pay and report. The reverse charge liability is paid in cash and reported in Table 3.1(d) of GSTR-3B. Credit is claimed in Table 4(A)(2), import of services, subject to sections 16 and 17(5) of the CGST Act. Raise a self-invoice for each supply.
  • Watch the cost. For businesses with full credit, the effect is mainly cash flow and compliance. Where credit is restricted or blocked, the IGST becomes a real cost of the commission.
  • Do not forget withholding. The GST position does not change the income tax position on the same payment. Withholding under section 195 still has to be examined separately.

Where this fits

For Indian businesses serving foreign clients, this is a material change in export treatment. It is simple to state, but it has to be built into invoicing, LUT filings, refund planning and vendor payments.

Wissen Solutions supports service exporters with LUT filing, export invoicing and GST return compliance through our GST, income tax and TDS return filing services. If you are unsure whether your service now qualifies, or how to treat contracts that run across 30 March 2026, the facts of your contracts will decide it, and they are worth reviewing before the next invoice goes out.

Sources (statutory position checked 24 October 2026)

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