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The provision affected a wide spectrum of export-oriented service providers such as IT/ITES companies, global capability centres (GCCs), business process outsourcing units, consulting firms, and marketing support entities providing facilitation services to overseas clients.
The Legislature has now addressed this through the Finance Act, 2026, which received Presidential assent on 30thMarch 2026 and effectuates the omission of Section 13(8)(b). This article examines the legal framework, the mechanics of the amendment, its effective date, and the layered commercial and compliance implications for businesses.
Under the IGST Act, the export character of a service depends on the determination of its 'place of supply'. Section 13 governs this determination where either the supplier or recipient is located outside India. The default rule under Section 13(2) locates the place of supply at the location of the recipient, consistent with the destination-based principle underlying GST.
Section 13(8)(b), however, carved out a specific exception for intermediary services by deeming the place of supply to be the location of the supplier. The term 'intermediary' is defined under section 2(13) of the IGST Act to mean a broker, agent or any person who arranges or facilitates the supply of goods or services between two or more persons, but excludes a person who supplies such goods or services on his own account.
The practical consequence was significant: Indian entities facilitating cross-border supplies for overseas principals were treated as rendering taxable domestic services, regardless of the foreign residency of their clients. This denied them export status, zero-rated benefits, and refund of accumulated ITC, thereby imposing a direct cost on India's services export ecosystem.
Pursuant to the recommendation of the GST Council at its 56th meeting held on 3 September 2025, and in response to sustained industry representations highlighting the issues emanating from the existing provision, the Legislature has omitted section 13(8)(b) of the IGST Act through the Finance Act, 2026.
CBIC had earlier issued Circular No. 159/15/2021-GST dated 20th September 2021, which provided guidance on the conditions for intermediary classification - requiring a minimum of three parties, two distinct supplies, and the intermediary not supplying the main service on its own account. Despite this clarification, interpretational disputes continued across varied business models, including IT/ITES back-office arrangements and principal-to-principal service structures.
Post-omission, the place of supply for intermediary services falls under the default rule of Section 13(2) i.e., the location of the recipient. The legislature has thus brought intermediary services back within GST's foundational destination-based framework.
A critical aspect of this amendment is its effective date. Chapter I of the Finance Act, 2026 contains commencement provisions; however, Section 157, which effects the omission of Section 13(8)(b), does not specify a separate commencement date. In the absence of such specification, Section 5 of the General Clauses Act, 1897 applies, which provides that a Central Act not expressed to come into operation on a particular day shall come into operation on the day it receives Presidential assent.
Accordingly, the omission of Section 13(8)(b) takes effect from 30th March 2026 i.e. the date on which the Finance Act, 2026 received Presidential assent.
| Intermediary services procured from a foreign party | Not treated as import of services → No RCM liability | Treated as import of services → IGST payable under RCM |
|---|---|---|
|
Particulars
|
Position before 30th March 2026
|
Position with effect from 30th March 2026
|
|
Place of Supply – Intermediary Services
|
Location of the supplier (Section 13(8)(b))
|
Location of the recipient (Section 13(2) – default rule)
|
|
Intermediary services provided to a foreign party
|
Not treated as export → GST payable → No refund eligibility
|
Treated as export of services* → Zero-rated → Refund of ITC eligible
|
*Subject to fulfilment of all conditions of 'export of services' under Section 2(6) of the IGST Act, 2017.
The most direct benefit of the amendment accrues to Indian entities providing intermediary services to overseas recipients. Sectors including IT, BPO, GCC operations, marketing support, and procurement services stand to benefit from the following:
The amendment simultaneously gives rise to a new compliance obligation. Prior to 30th March 2026, foreign intermediaries providing services to Indian recipients had their place of supply outside India and accordingly, no import of services arose. Post-amendment, with the place of supply shifting to India (the recipient's location), such transactions qualify as import of services under Section 2(11), triggering RCM under Section 5(3)/(4) of the IGST Act.
Indian recipients must self-assess and discharge IGST under RCM. This creates an additional tax incidence particularly in sectors with restricted or ineligible ITC such as hotels, airlines, petroleum entities, and financial services providers procuring services from overseas booking agents, cargo intermediaries, or securities brokers.
In light of the above legislative changes, taxpayers should consider the following immediate action points:
Conclusion
The omission of Section 13(8)(b) of the IGST Act through the Finance Act, 2026 is a significant and welcome development in India's indirect tax landscape. By bringing intermediary services within the scope of the default destination-based rule, the amendment extends export benefits to a broad class of Indian service providers and is expected to meaningfully reduce classification-related disputes in cross-border contexts. At the same time, businesses must be alert to the RCM on inbound intermediary arrangements and the need to recalibrate contracts and compliance systems.
Viewed holistically, this amendment reflects the Indian government's ongoing commitment to strengthening the GST framework in a manner that supports business, facilitates exports, and keeps pace with the evolving needs of the economy.
Sachin Jain, Director, Aamir Zarif, Manager, and Jay Jain, Consultant, Grant Thornton Bharat, have also contributed to this article.
This article first appeared in the Taxmann on 4 April 2026.
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