Intermediary Services Under GST: Export Exemption Explained

Indian businesses that serve clients in overseas countries should be aware about rules relating to GST. In the few years the number of businesses that do work for clients in other countries has grown a lot. One thing that people often do not understand about GST regime is the taxation of intermediary services under GST.

Many businesses think that if they do work for clients in countries, they do not have to pay tax.This is not true. The rules for services are different from the rules for other kinds of work that businesses do for clients in other countries.

Whether a service qualifies as an export depends on several statutory conditions, including place of supply. The rules for services are subject to a special place of supply provision under the Integrated Goods and Service Tax (IGST) Act, so even if the client is in another country the work may not be considered an export. This is why it is so important to understand the rules about GST and exports.

At TMWala, we assist businesses, exporters, consultants, startups, and service providers in understanding complex GST provisions relating to cross-border transactions. Our team helps clients determine whether their services qualify as exports, evaluate the applicability of GST on intermediary services, ensure regulatory compliance, and minimize tax risks through practical, business-focused advice.

What Are Intermediary Services Under GST?

The term intermediary services under GST are defined under Section 2(13)[1] of the IGST Act. An intermediary is a broker, agent, or any person who arranges or facilitates the supply of goods, services, or securities between two or more persons but does not supply those goods or services on their own account.

The defining feature of an intermediary is that the person acts as a facilitator between two parties rather than being the principal supplier of the service.

Some common examples include Commission agents, Marketing representatives, Liaison offices, Sourcing agents, Export commission agents

On the other hand, professionals such as software developers, architects, lawyers, accountants, engineers, consultants, and designers who provide services directly to overseas clients on a principal-to-principal basis are generally not treated as intermediaries merely because they deal with foreign customers.

GST On Intermediary Services

The biggest issue relating to GST on intermediary services is the determination of the place of supply.

For most cross-border services, the place of supply is the location of the recipient. However, intermediary services are governed by a special provision under Section 13(8)(b) of the IGST Act, which provides that the place of supply shall be the location of the supplier. This clause was omitted, and intermediary services now follow the general rule under section 13(2)[2] which provides that place of supply is now the location of the recipient.

Export Of Services Under GST

To be considered an export of services for GST all the rules under Section 2(6)[3] of the IGST Act have to be met. These rules are:

• The company that provides the services/supplier is in India.
• The company that gets the services/recipient is outside India.
• The place of supply is outside India.
• The company gets paid in a currency that can be exchanged for other currencies or in another way that is allowed.
• The company that provides the services and the company that gets the services are not the same company with different offices.

When it comes to services that help other companies do business, the rule about where the servicers used is very important. This is because the services are considered to be used in India, where the company that provides them is located. So even if the services are provided to companies in countries, they usually do not qualify as exports.

So, companies should really think about what kind of services they provide, rather than just assuming that every time they do business with a company in another country, it is an export of services. Companies that provide services to countries need to understand the rules about the export of services. The rules for the export of services are important for companies that provide services to other countries.

Understanding GST Zero Rated Supplies

Under Section 16 of the IGST Act, exports are considered GST zero-rated supplies. This is good for exporters because the government wants to make sure they can compete well in markets.

If you are a supplier making zero-rated supplies, you have two options:

• You can export under a Letter of Undertaking (LUT) without paying IGST and then claim back the input tax credit you have not used.
• You can pay IGST on the export. Then claim a refund.

Intermediary services usually do not count as exports because of where the supply is made. This means they are not typically GST zero-rated supplies. So, you may have to charge GST even if your customer is, outside India.

Is There Any GST Export Exemption For Intermediary Services?

Many people who pay taxes look for a way to avoid paying GST when they export intermediary services. You need to know that just because the person buying the service is outside India, it does not mean you do not have to pay GST.

The tax rules depend on what the service is. If you are just helping two other companies do business with each other, then your service is probably a service and you must pay tax in India.

If you are doing the work on your own and not just acting as a middleman, then it might not be considered an intermediary service. In these cases, if you meet all the requirements for exporting a service, you might not have to pay GST. This is because your service could be considered an export, and exports do not have to pay GST.

So, it is very important to figure out if your service is really a service before you try to avoid paying GST when you export it. You need to understand what a GST export exemption is and how it applies to services. Determining if a service is a service is crucial for the GST export exemption.

How To Determine Whether You Are An Intermediary

Businesses that handle cross-border transactions need to review their contracts and actual business activities carefully.

Some key questions to consider are:

• Are you setting up? Helping with a deal between two parties?
• Do you get paid a commission when the deal goes through?
• Are you talking contracts on someone’s behalf?
• Are you offering services on your own?
• Who is responsible for delivering the service according to the contract?

The answers to these questions usually help figure out if the service is an intermediary service or an independent export of services.

Just calling a business a “consultant” or “service provider”, in the agreement does not automatically decide how it is treated for GST. Tax authorities look at what’s really happening in the transaction, not just what it is called.

Compliance With GST Export Rules

Proper compliance with GST export rules is essential for businesses engaged in international trade in services.

Businesses should maintain:

• Service agreements clearly defining the scope of work.
• Tax invoices.
• Foreign Inward Remittance Certificates (FIRC), where applicable.
• Bank Realisation Certificates (BRC), if required.
• Letter of Undertaking (LUT) for eligible exports.
• Documentation demonstrating that services are provided on a principal-to-principal basis.

Proper documentation plays a significant role in establishing whether services qualify as exports or are taxable intermediary services.

Common Mistakes Businesses Should Avoid

Many businesses unintentionally create GST exposure due to incorrect classification of services. Some common mistakes include:

• Assuming every foreign client transaction qualifies as an export.
• Ignoring the special place of supply provisions applicable to intermediary services.
• Using agency terminology in agreements, even when providing independent services.
• Claiming benefits available to GST zero-rated supplies without satisfying statutory conditions.
• Maintaining inadequate contractual documentation.
• Failing to review agreements before entering cross-border transactions.

Avoiding these mistakes can significantly reduce litigation and compliance risks.

Conclusion

The tax on services in India is really complicated. When Indian companies export things, they usually do not have to pay tax. This is not the case for intermediary services. These services are treated differently. Are often not considered exports even if the company gets paid in a foreign currency.

Indian companies that provide services to clients in other countries need to be very careful. They should look at their contracts and the work they do to see if they can avoid paying tax on these services. If the services are provided on their own and meet the rules for exporting services, then the company might not have to pay tax. The rules for services are changing all the time, so it is a good idea for companies to get professional help and keep very good records. This way, they can follow the rules. Get the tax benefits they are allowed to have.

If you are uncertain whether your services qualify as intermediary services or exports under GST, book a consultation with TMWala. With expert guidance from TMWala, businesses can confidently navigate complex GST regulations while ensuring compliance and optimizing available tax benefits.

FAQs

1. What are intermediary services under GST?
   Intermediary services involve arranging or facilitating supplies between two or more parties without supplying the goods or services on one’s own account.
2. Is GST applicable to intermediary services?
   Yes, GST generally applies to intermediary services based on the place of supply provisions under the IGST Act.
3. Are intermediary services considered exports?
   Not always. They qualify as exports only if all conditions under the IGST Act are fulfilled.
4. What is the place of supply for intermediary services?
   The place of supply is generally the location of the supplier.
5. Can intermediary services be zero-rated under GST?
   Generally, no. Most intermediary services do not qualify as GST zero-rated supplies due to the place of supply rules.
6. What is the GST export exemption?
   It refers to the benefits available for eligible export transactions that satisfy the conditions prescribed under the GST law.
7. How can I determine if I am an intermediary?
   Review your contract to see whether you facilitate a transaction or provide services independently.
8. Is a foreign currency payment enough to claim export benefits?
   No. All conditions for the export of services under GST must be satisfied.
9. What documents are required for the export of services?
   Typically, invoices, contracts, LUT (where applicable), and foreign remittance documents are required.
10. How can TMwala help with GST compliance?
    TMwala provides GST advisory, export compliance, contract reviews, LUT assistance, and transaction analysis for cross-border services.

[1]Integrated Goods and Services Tax Act, 2017, Section 2(13).

[2]Integrated Goods and Services Tax Act, 2017, Section 13(2).

[3]Integrated Goods and Services Tax Act, 2017, Section 2(6)