Easier rules to aid IT, financial service exports

The Goods and Services Tax (GST) Council is likely to consider a slew of changes to the tax treatment of services exports at its October 7 meeting, aimed at aligning rules with how Indian companies actually serve overseas customers and easing the recovery of taxes embedded in export costs, sources said.

The proposals could provide relief to information technology and IT-enabled services companies, engineering and consulting firms, testing and certification agencies, research organisations and financial-service providers.

These services form a major chunk of services exports of $421.3 billion in 2025-26. Services exports as a percentage of total exports have been increasing every year. They now account for 48.8% of total exports up from 33.8% in 2024-15.

A key proposal before the council is to remove the requirement that the supplier and recipient of a service should not be establishments of the same person. This condition has created difficulties for Indian companies operating through overseas branch offices, even when the underlying customer is a foreign entity.

The proposed change would shift the focus to the customer's location rather than the corporate structure through which the Indian supplier delivers the service. This could provide greater certainty to companies maintaining overseas offices to service local clients and will benefit IT, business services, professional and consulting firms, research organisations and engineering companies.

The Council is also expected to change the treatment of services performed in India on goods belonging to foreign customers. At present, place-of-supply rules can result in such transactions being determined by where the work is physically performed.

The proposed change would, in specified cases, link the place of supply to the location of the foreign customer, allowing services such as testing, inspection, certification, repair, calibration, research and analysis carried out in India on foreign-owned goods to qualify as exports.

Another proposal seeks to align GST requirements for receipt of export proceeds with the Reserve Bank of India's (RBI) foreign-exchange rules. The move is intended to eliminate situations where an exporter meets RBI requirements but faces a separate test under GST.

The clarification would also cover reinsurance broking arrangements, where brokers deduct their commission from premiums and remit the balance to the overseas party. This would address difficulties in applying conventional payment-realisation requirements to such transactions.

The Council is also likely to settle the treatment of supplies involving Free Trade Warehousing Zones. Goods sold to an overseas buyer and delivered, at the buyer's direction, to an FTWZ for storage or processing would qualify as exports subject to prescribed payment conditions.

Two other measures relate to specific tax and compliance issues. Services supplied without consideration by the head office of a foreign shipping line to its Indian office are proposed to be exempted. The Council is also expected to settle retrospectively the position on restrictions on refunds for exporters who had availed duty concessions on inputs.

The broader refund changes would allow recovery of taxes paid on services and plant and equipment, alongside faster, risk-based release of refunds helping them remain competitive in global markets.