GST clarifications to benefit IT industry

By: |
September 22, 2021 4:30 AM

The IT industry will also benefit from another clarification that GST refunds could be claimed by exporters when exporting services to their parent or subsidiary companies incorporated abroad.

The normal understanding of the industry was that back office, BPO, data processing, software development kind of work do not qualify as intermediary.The normal understanding of the industry was that back office, BPO, data processing, software development kind of work do not qualify as intermediary.

The Central Board of Indirect Taxes and Customs (CBIC)’s clarification on the scope of intermediary services will ensure that exports of R&D in software, business process management and IT services are not denied ‘export status’.
This will give a boost to the Indian IT industry, as GST refunds will be smoother.

The IT industry will also benefit from another clarification that GST refunds could be claimed by exporters when exporting services to their parent or subsidiary companies incorporated abroad.

After the 45th GST Council gave its nod to these changes last Friday, the CBIC has issued the relevant notifications last evening detailing the situations where these provisions would apply.

An intermediary has to pay 18% GST on services. The normal understanding of the industry was that back office, BPO, data processing, software development kind of work do not qualify as intermediary. “However, there was an advance ruling ( from Maharashtra advance ruling authority) saying that even these kind of services could qualify as intermediary. Because of that tax authorities were rejecting refund claims at various places saying that the services did not qualify as exports,” said said Pratik Jain, Partner, Price Waterhouse & Co.

Now, it has been clarified what are the conditions to be satisfied to be classified as an intermediary. Intermediary is defined as somebody like a commission agent or broker, who facilitates a transaction between two entities. “If an entity was doing just back office or call centre or software development work, even if interacting with end customer, it won’t qualify as intermediary,” Jain said.

The clarification by the CBIC also clears the ambiguity in interpretation arising out of supply of service by a subsidiary or sister concern or group concern, of a foreign company in India, which is incorporated under the laws in India, to the foreign company incorporated under laws of a country outside India.

Exports from one to another group company would qualify as transaction between two independent legal entities and eligible for refunds on taxes paid on inputs. “CBIC clarifies that what cannot be classified as an export of service is when the supply of services is by an establishment operating like branch, agency or representational office of a foreign company in India to any other establishment of the said foreign company outside India or when the supply of services is by an establishment operating like branch, agency or representational office of a company incorporated in India to any other establishment of the said company in any country outside India,” said Aditya Singhania, Partner, Singhania GST Consultancy.

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