The place of supply is the most critical factor in determining whether a service qualifies as an export and is eligible for zero-rating under GST. This comprehensive guide explains the legal framework, the conditions for zero-rating, and the recent amendments that have transformed the treatment of intermediary services.
Understanding Place of Supply for Export of Services
Legal Framework
The place of supply for cross-border services is specified in Section 13 of the IGST Act. The general rule under Section 13(2) states that the place of supply is the location of the recipient.
Why Place of Supply Matters
The place of supply determines:
- Whether the supply is an export (zero-rated) or a domestic supply (taxable)
- Whether GST is payable in India
- Whether refund of ITC is available
Conditions for Zero-Rating
For a service to qualify as an export and be eligible for zero-rating, the following conditions must be satisfied:
- Supplier located in India
- Recipient located outside India
- Place of supply outside India
- Payment received in convertible foreign exchange
- Service used outside India (in certain cases)
If these conditions are fulfilled, the transaction qualifies as a Zero-Rated Supply under Section 16 of the IGST Act. Export of services is zero-rated, meaning the service exporter doesn't have to apply GST on the final invoice.
The Intermediary Services Amendment: A Game Changer
The Problem Before the Amendment
Prior to the Finance Act 2026, Section 13(8)(b) of the IGST Act deemed the place of supply of intermediary services to be the location of the supplier. This meant that even if the recipient was outside India, the place of supply was in India, denying export benefits. Such transactions attracted GST at 18%.
The Finance Act 2026 Amendment
The Finance Act 2026 finally ended this anomaly by removing Section 13(8)(b) of the IGST Act. Intermediary services provided to recipients outside India are now treated as exports, making them eligible for zero-rated GST treatment.
With this amendment, the place of supply for intermediary services now shifts to the recipient's location instead of the supplier's location. The general rule under Section 13(2) now applies, which states that the place of supply is the location of the recipient.
Impact of the Amendment
For Outward Intermediary Services: Outward intermediary services to overseas clients may now qualify as exports (subject to receipt in foreign exchange and non-related party conditions), enabling zero-rated benefits. The supplier of service shall have two options: export with payment of IGST (and claim refund) or export without payment of IGST (under LUT).
For Inward Intermediary Services: Services received from foreign intermediaries will now attract GST against which ITC can be claimed.
Effective Date: Only the portion with a time of supply on or after 30 March 2026 qualifies for zero-rating.
Who Benefits?
This shift ensures that intermediary services provided to overseas clients can now qualify as exports, benefiting IT companies, Global Capability Centres (GCCs), consulting, BPO, and digital service providers. The move aligns the place of supply with the recipient's location, granting export status and benefits to these service providers.
B2B vs B2C Cross-Border Services
For B2B transactions, the place of supply is generally the location of the recipient (registered person). For B2C transactions, it is generally the location of the supplier, with several exceptions. For cross-border services, special rules apply based on the location of supplier and recipient.
Common Mistakes to Avoid
Mistake 1: Assuming All Cross-Border Services Are Exports The place of supply must be outside India for the service to qualify as an export.
Mistake 2: Not Applying the Intermediary Amendment Post-30 March 2026, intermediary services to overseas clients qualify as exports.
Mistake 3: Incorrect Place of Supply Determination Incorrect place of supply leads to wrong tax treatment.
Mistake 4: Not Satisfying Export Conditions Even if the place of supply is outside India, other conditions (foreign exchange receipt, etc.) must be satisfied.
Best Practices
Determine Place of Supply Correctly: Apply the correct place of supply rules for cross-border services.
Apply Intermediary Amendment: Apply the Finance Act 2026 amendment for intermediary services.
Satisfy Export Conditions: Ensure all conditions for export are satisfied.
Maintain Documentation: Keep records of place of supply determination.
Seek Professional Guidance: Place of supply rules have complexities; professional advice is recommended.
The place of supply for export of services determines whether the service qualifies for zero-rating. With the recent amendment for intermediary services, more service providers can now avail export benefits.
Need help with place of supply determination? Our GST experts provide comprehensive advisory and support.
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