Intermediary services have a unique position under GST. Unlike other services, intermediary services are generally denied export status even when provided to a recipient outside India. This comprehensive guide explains the reasons and tax implications.
What Are Intermediary Services?
Definition
Under Section 2(13) of the IGST Act, an "intermediary" means a broker, agent, or any other person, by whatever name called, who arranges or facilitates the supply of goods or services between two or more persons, but does not include a person who supplies such goods or services on his own account.
Examples of Intermediary Services
- Commission agents
- Brokers
- Facilitators
- Matchmakers
- Any person arranging or facilitating a supply
Why Intermediary Services Are Denied Export Status
The Key Reason: Place of Supply
The place of supply for intermediary services is the location of the intermediary, not the location of the recipient. This means even if the recipient is outside India, the place of supply is in India.
The Consequence
Since the place of supply is in India:
- The supply is not treated as an export
- GST is payable on the supply
- Refund is not available (as an export)
The Legal Position
Place of Supply Rules
Under the place of supply rules, for intermediary services, the place of supply is the location of the intermediary.
Not a Zero-Rated Supply
Since the place of supply is in India, intermediary services are not zero-rated supplies.
Tax Implications
GST Payable
GST is payable on intermediary services at the applicable rate (typically 18%).
No Export Refund
Since the supply is not treated as an export, refund is not available.
ITC Availability
The intermediary can claim ITC on inputs used for providing the service.
Distinction: Intermediary vs. Principal
Intermediary
- Arranges or facilitates supply between two parties
- Place of supply: Location of intermediary
- GST payable: Yes
Principal
- Supplies goods/services on his own account
- Place of supply: As per normal rules
- GST payable: As applicable
Common Mistakes
Mistake 1: Treating Intermediary Services as Exports Intermediary services are not exports even if the recipient is outside India.
Mistake 2: Not Charging GST GST must be charged on intermediary services.
Mistake 3: Claiming Refund Refund is not available for intermediary services.
Mistake 4: Incorrect Place of Supply The place of supply is the location of the intermediary.
Best Practices
Identify Intermediary Services: Correctly identify if the services are intermediary services.
Charge GST: Charge GST on intermediary services.
File Returns: Report intermediary services in GSTR-1.
Do Not Claim Export Refund: Do not claim refund as an export.
Seek Professional Guidance: Intermediary services rules have complexities; professional advice is recommended.
Intermediary services are denied export status under GST because the place of supply is the location of the intermediary. By understanding this rule, businesses can ensure correct tax treatment.
Need help with intermediary services GST compliance? Our GST experts provide comprehensive advisory and support.
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