In a major relief for India’s IT services exporters, the government has scrapped the contentious “intermediary” clause under the Integrated Goods and Services Tax (IGST) Act through the Finance Act, 2026 — a move expected to ease long-standing tax disputes and unlock refunds.
The amendment addresses a key pain point for IT/ITES firms, global capability centres (GCCs), and other cross-border service providers catering to overseas clients. Until now, services classified as intermediary were taxed based on the supplier’s location in India, even if the end client was abroad. As a result, such services failed to qualify as exports, leading to denial of zero-rating benefits and blocking of GST refunds.
“Over the years, this provision had emerged as one of the most contentious and litigated areas, particularly impacting the IT/ITES sector, GCCs and cross-border service providers. By deeming export-oriented services as domestic supplies, it created a structural inconsistency that resulted in avoidable tax costs, denial of refunds and prolonged disputes,” said Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat.
With the removal of this provision, intermediary services supplied to foreign clients can now qualify as export of services, subject to prescribed conditions. This effectively brings them under the zero-rated category, allowing companies to claim refunds and improving overall tax efficiency.
Earlier, several service providers were classified as intermediaries, which meant the “place of supply” was considered to be the supplier’s location in India rather than the client’s location overseas. Consequently, services were treated as domestic supplies instead of exports, depriving firms of export benefits.
“Earlier, in cases involving export of services, it was commonly observed that while processing refund claims, the authorities would often seek to classify genuine export transactions as intermediary services, thereby denying export benefits. With this amendment, such ambiguity is resolved, as intermediary services will also now qualify as export of services,” said Amit Maheshwari, Tax Partner at AKM Global.
Tax experts say the move aligns India’s GST regime with globally accepted destination-based taxation principles, restoring the core principle that exports should remain zero-rated. The change is expected to improve cash flows, reduce litigation exposure, and enhance the global competitiveness of Indian service providers.