NEW DELHI: The Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) sector has got a big relief from the government after it clarified that the services outsourced to India or carried out in the country for foreign entities will not be treated as intermediary services, and hence not face GST at 18%.
The Central Board of Indirect Taxes and Customs (CBIC) has in a circular clarified that the specific provision of place of supply of ‘intermediary services’ under the IGST Act will be invoked only when the supplier of intermediary services or the recipient of intermediary services is outside India.
The circular clarifies that an intermediary is someone who arranges or facilitates the supplies, and it is thus a natural corollary that the arrangement requires a minimum of three parties. “An activity between only two parties can, therefore, NOT be considered as an intermediary service,” it says.
While intermediary services attract a GST of 18%, no GST is applicable on exports. Tushar Aggarwal, founder partner of CA firm Tattvam Advisors, says the clarification will result in grant of refund of accumulated input tax credit to the sector.
According to Rajat Mohan, senior partner, AMRG & Associates, the clarification would not only help BPO and KPO sector realise old GST refunds struck in the system, but would also ease out litigation in the outbound services supplied by IT firms.