Recruitment consultants who receive fees from foreign clients sit on a fault line in GST law. The domestic placement fee is taxable at 18% where the consultant is registered and the recipient is in India. The foreign fee may qualify as a zero-rated export of services—or it may be characterised as an intermediary service and taxed differently. The distinction turns on whether the consultant supplies the service on its own account on a principal-to-principal basis, or merely facilitates a supply between two other persons. This is not a semantic point; it determines whether the foreign fee is zero-rated and whether accumulated input tax credit is refundable.
The Domestic Fee and the 18% Rate
Where a recruitment consultant provides placement, staffing, executive search or manpower services to an Indian client, the supply is taxable at 18% if the consultant is registered. The registration threshold is ₹20 lakh in a financial year, or ₹10 lakh in the special category states specified for services. Aggregate turnover includes domestic placement fees, foreign fees that are taxable, retainer income and any other taxable supplies.
The domestic fee is generally straightforward. The invoice should carry the correct SAC, describe the service as recruitment or staffing, and apply CGST and SGST for intra-state supplies or IGST for inter-state supplies depending on the location of the recipient.
The Foreign Fee and the Section 2(6) Conditions
A fee received from a foreign client—typically a foreign university, a foreign employer or an overseas staffing firm—does not automatically qualify as a zero-rated export. Section 2(6) of the IGST Act requires five cumulative conditions: the supplier is located in India; the recipient is located outside India; the place of supply is outside India; payment is received in convertible foreign exchange or in permitted Indian rupees; and the supplier and recipient are not merely establishments of the same person.
A foreign client paying in dollars satisfies the payment condition. The place-of-supply condition requires analysis of the nature of the service and the location of the recipient. The establishment condition is critical: if the foreign recipient is a branch or affiliate of the Indian consultant, the transaction is not an export because the supplier and recipient are establishments of the same person.
The Intermediary Controversy and the Delhi High Court Position
The central controversy in this sector is whether recruitment support services to foreign universities or foreign employers are “intermediary services” under Section 2(13) of the IGST Act. An intermediary is a person who arranges or facilitates the supply of goods or services between two other persons. The intermediary’s service is not itself a zero-rated export in the same way as a principal-to-principal supply; the place of supply rules and the tax treatment differ.
The Delhi High Court has addressed this question in the context of education consultancy and recruitment support services rendered to foreign universities. The Court held that where the Indian entity supplies the services on its own account—rather than merely facilitating a supply between the foreign university and the student—the service does not fall within “intermediary services” and can qualify as export of services eligible for refund. The determinative factor is the nature of the obligation and the person liable to pay consideration, not merely the label used in the contract.
The practical consequence is that the consultant must be able to demonstrate that it is supplying a service to the foreign client on a principal-to-principal basis. A contract that describes the consultant as a “facilitator” or “arranger” between the foreign university and the student creates intermediary risk. A contract that defines the consultant’s deliverables, makes the consultant liable for performance to the foreign client, and fixes the foreign client as the person liable to pay consideration supports the principal-to-principal characterisation.
LUT, Refund and Foreign Exchange Realisation
Where the foreign fee qualifies as a zero-rated export, the consultant may export under a LUT in Form GST RFD-11 without payment of IGST and claim refund of eligible accumulated input tax credit, or pay IGST and claim refund under the alternative route. The LUT is valid for one financial year and must be renewed.
Foreign exchange realisation must be documented through bank advice or FIRC. The invoice should be raised on the foreign client with a clear description of the service, the zero-rated treatment and the relevant export declaration. The GST returns should report the export invoices in the zero-rated table with the correct tax rate treatment.
What the Recruitment Consultant Should Control
The consultant’s GST position on foreign fees depends on three variables: whether the service is supplied on a principal-to-principal basis rather than as an intermediary; whether all five Section 2(6) conditions are satisfied; and whether the documentation—contract, invoice, bank realisation and GST returns—consistently supports the export characterisation. The consultant who controls these variables is in a defensible position; one who relies on a generic “overseas recruitment” label is exposed to recharacterisation.
Call to Action: We advise recruitment consultants, staffing firms and education consultancies on the export-of-services test, the intermediary controversy, LUT filing and refund claims. For a compliance review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.