In a major relief for IT companies, Global Capability Centres (GCCs) and service exporters, the Finance Act 2026 has removed the intermediary clause under the Integrated Goods and Services Tax Act (IGST Act), resolving a long-standing tax dispute that had impacted export benefits for service providers.
Under the previous rules, many service providers were classified as “intermediaries”, which meant the “place of supply” was considered the supplier's location in India rather than the client's location overseas. This classification often led to services being treated as domestic supplies instead of exports, resulting in denial of export benefits and GST refunds.
Place Of Supply Rule Changed
With the amendment under the Finance Act 2026, the place of supply for intermediary services will now shift to the recipient's location instead of the supplier's location. This effectively means that services provided to foreign clients will now qualify as exports.
As a result, such services will be eligible for zero-rating benefits and input tax credit (ITC) refunds, significantly improving cash flows for service exporters.
Relief After GST Scrutiny
The move follows heightened GST scrutiny on GCCs and multinational subsidiaries in recent years, where authorities had questioned whether services provided to overseas group companies qualified as exports or should be classified as intermediary services.
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Due to the intermediary classification, even genuine export transactions had faced GST notices, investigations and litigation, creating uncertainty for sectors such as IT services, R&D centres, consulting firms and back-office operations.
Clarity For Service Exporters
With the removal of the intermediary clause ambiguity, the amendment is expected to bring long-awaited clarity and reduce tax disputes for service exporters. The change is particularly significant for India's large IT services sector and the growing GCC ecosystem, which provide services to global clients and parent companies.
The amendment is expected to improve ease of doing business, reduce litigation and strengthen India's position as a global hub for technology, research, consulting and shared services exports.
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