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Strengthening Export Competitiveness through Targeted Reforms – Spotlight on GST Treatment of Intermediary Service
Strengthening Export Competitiveness through Targeted Reforms – Spotlight on GST Treatment of Intermediary Service

September 1, 2025

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India’s technology industry remains one of the most significant drivers of the country’s economic progress. In 2024–25, exports of IT and IT enabled services (IT–ITES) were valued at more than USD 224 billion, accounting for nearly half of India’s total services exports and employing nearly six million skilled professionals. Sustaining and strengthening this trajectory requires a tax and regulatory environment that is predictable, competitive and aligned with international practice.

The industry has been working in close partnership with government on a set of reforms that are central to ease of doing business. For example:

  • Simplifying Special Economic Zone procedures as a significant share of the industry’s expansion continues to be anchored within SEZs.
  • Updating international taxation safe harbour rules to enable the fast-growing base of Global Capability Centres that are by design well suited for it, to leverage the same as part of the transfer pricing arrangements.
  • Modernising labour frameworks provide clarity and flexibility for a workforce that is increasingly mobile and diverse, and
  • As part of continuous ease of doing business under the GST, there are a range of issues that are important agenda items for both IT-ITES and broader platforms based ecommerce in India.

For IT-ITES, the GST treatment of head office and branch office transactions is of critical importance given the offshore–onsite model that underpins much of the industry’s delivery. Addressing he treatment of intermediary services under GST is another pressing concern where the challenge lies in the misclassification of IT–ITES exports as intermediary services. 

This blog spotlights this intermediary mis-classification challenge. As part of the ITES industry's model, firms contract directly with overseas clients, deliver services on their own account and assume full responsibility for quality and performance. Yet, at the field level, services such as customer support, procurement or marketing have too often been mis-characterised as intermediary activities. When this occurs, the transaction is deemed to take place in India, GST ends up being applied to exports. The effect is not only prolonged litigation and unintended costs, but also uncertainty that undermine confidence in cross-border contracting.

The Ministry of Finance has acknowledged these difficulties. Clarificatory circulars issued in 2021 confirmed that IT–ITES services delivered on own account should not be treated as intermediary. The matter has since been deliberated by the GST Law Committee, with a Group of Officers constituted by the GST Council in early 2025 to examine place-of-supply rules and recommend solutions. The Parliamentary Standing Committee on Commerce has similarly recognised the risks of double taxation and advised legislative change.

These developments indicate that the problem is not one of administration alone but requires a structural correction. Such a correction would also more closely align with international practice, where business-to-business services are taxed in the jurisdiction of consumption, not at the origin of supply. Aligning with this principle would remove recurring disputes, ease cash-flow pressures, and provide the predictability that global clients seek. Crucially, it can be achieved without fiscal risk to the exchequer or risking unintended outcomes.

As the GST Council prepares for its forthcoming meeting, there is cautious optimism that progress may be made on this long-standing concern. Whether in relation to intermediary classification, head office and branch office exports or other issues, including those concerning the platforms, GST reforms carry direct implications for strengthening India’s global trade competitiveness and sustaining high-quality employment.

Addressing these, along with other taxation, SEZ and labour related issues will be an important boost to build on India’s standing as a competitive and reliable partner in the global digital economy. We will be spotlighting some of the key ones as part of this series.


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Nasscom-PP-TAX-02-2025_Ease-of-Doing-Business_Taxation-Paper-II_Intermediary-Services-Litigation.pdf

ashish.aggarwal



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