Outsourced services won’t attract 18% GST, clarifies govt
An intermediary is a body that facilitates the supply of goods or services or securities between two or more parties.
The government has clarified that the services outsourced to India or carried out in the country for foreign entities will not be treated as intermediary services. It stated that these services will attract the 18% goods and services tax (GST), The Economic Times mentioned in a report. This will release tax refunds to firms in the information technology (IT), IT-enabled services (ITeS), financial services, and research and development sectors. The matter was under litigation for the last four years. This will reduce the GST disputes and help the services export sector.
Intermediary and intermediary arrangement
An intermediary is a body that facilitates the supply of goods or services or securities between two or more parties. In the intermediary arrangement, a minimum of three parties is engaged. As per the circular, it will have two distinct supplies, one between the two contracting entities and an ancillary supply provided by the intermediary.
Anyone supplying goods or services or both or securities on his own account or subcontracting for a service does not come under intermediary service.
The back-office services providers, or business process outsourcing (BPO) entities, will be treated as intermediaries, denying export status to their services to overseas entities. Exports are zero-rated under GST and not liable to the tax while intermediaries face an 18% charge.
Due to the disputes over the definition of ‘intermediary’ services, more than 200 companies were involved. The government’s circular details out what will define an intermediary.
The government’s decision to remove the 18% GST will help the back-office model that is facing competition from emerging jurisdictions.
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