Place of Supply for Intermediary Services: Budget 2026 Ends Years of Litigation

Case Example: XYZ Export Consultancy

Business Profile:

• Indian company providing export facilitation services
• Helps foreign buyers connect with Indian manufacturers
• Charges 5% commission on deal value

Typical Transaction:

• US company wants to buy ₹1 crore worth of textiles from India
• XYZ facilitates the deal between US buyer and Indian manufacturer
• Commission earned: ₹5 lakh

The Dilemma:

XYZ’s Position:

• “We’re facilitating an export”
• “Our service should be zero-rated (0% GST)”
• “Place of supply is outside India”

Tax Department’s Position:

• “You’re located in India”
• “Service is consumed by foreign client in relation to Indian goods”
• “Pay 18% GST (₹90,000)”

Outcome:

• XYZ doesn’t charge GST (claims it’s export)
• Department issues show cause notice
• Demand: ₹90,000 + penalty + interest
• XYZ files appeal
• Litigation continues for 2-3 years ⚖️

The Solution: Budget 2026 Clarity

The Clear Rule

Section 13(8)(b) of IGST Act – Amended:

“The place of supply of intermediary services shall be the location of the supplier of services.”

BUT, with crucial clarification:

“Where such intermediary services are in relation to supply of goods or services exported from India, the place of supply shall be the location outside India, and such services shall be treated as export of services (zero-rated).”

Translation in Simple English:

If you’re an intermediary and:

1. The underlying transaction is an export from India, AND
2. Your service is directly related to that export

Then:

• Your service = Export service
• GST rate = 0% (zero-rated)
• Place of supply = Outside India
• No confusion, no litigation! ✅

How It Works: Detailed Examples

Example 1: Export Commission Agent ✅

Scenario:

Parties Involved:

• Foreign Buyer: German company (Textile GmbH)
• Indian Seller: Indian textile manufacturer
• Intermediary: XYZ Export Services (India)

Transaction:

• German company wants to buy textiles worth ₹1 crore
• XYZ connects them with Indian manufacturer
• Export happens: Textiles shipped from India to Germany
• XYZ’s commission: ₹5 lakh (5%)

Analysis Under New Rule:

Step 1: Identify the Underlying Transaction

• What is being traded? Textiles
• From where to where? India to Germany
• Nature of transaction? Export from India ✅

Step 2: Identify Intermediary’s Role

• What did XYZ do? Facilitated/arranged the export
• Is it related to export? Yes, directly ✅

Step 3: Determine Place of Supply

• Underlying transaction = Export
• Intermediary service = Aligned with export
• Place of supply = Outside India (Germany) ✅

Step 4: GST Treatment

• Service type: Export of service
• GST Rate: 0% (zero-rated) ✅
• GST Amount: NIL
  
  

XYZ’s Invoice to German Company:

XYZ Export Services

Invoice No: 001/2026-27

To: Textile GmbH, Germany

For: Export facilitation services

Commission: ₹5,00,000

GST @ 0% (Export of Service): ₹0

Total Amount Due: ₹5,00,000

Benefits:

✅ For XYZ (Intermediary):

• No GST cost to recover
• More competitive pricing
• Can quote ₹5 lakh instead of ₹5.9 lakh (with 18% GST)
• Attracts more international clients
• Clear compliance – no litigation risk

✅ For German Buyer:

• Lower total cost
• Clean invoice (no GST confusion)
• Prefers Indian agents over competitors

✅ For Indian Exporter:

• Gets business facilitated
• Benefits from competitive intermediary market
• Strengthens Indian export ecosystem

Savings for XYZ: ₹90,000 per transaction (18% GST avoided)
Annual Impact (20 such deals): ₹18 lakh saved! 💰

Example 4: Market Research Agency ✅

Scenario:

Parties:

• Client: US-based company wanting to source from India
• Agency: Indian market research firm

Services Provided:

• Identify potential Indian suppliers
• Conduct supplier due diligence
• Facilitate meetings and negotiations
• Support contract finalization for US imports from India

Fees: ₹10 lakh

Analysis:

Underlying Transaction: Future exports from India to US (being facilitated) ✅

Agency’s Role: Intermediary facilitating export transactions ✅

Place of Supply: Outside India ✅

GST Treatment: 0% (zero-rated) ✅

Savings: ₹1.8 lakh (18% GST avoided)

Impact: Indian research agencies can now compete with global consultancies! 📊

Before vs After: Complete Comparison

Scenario: Export Commission Agent

Important Compliance Points

To Claim 0% GST (Zero-Rating), You Must:

1. Prove Export Connection:

• Show that underlying transaction is an export
• Documentary evidence of export required:
  • Export invoices
  • Shipping bills
  • Bill of lading
  • Foreign inward remittance certificate

2. Establish Intermediary Role:

• You’re not the supplier/recipient of actual goods
• You’re facilitating/arranging the transaction
• Commission/fee-based engagement

3. Maintain Proper Records:

• Contracts clearly stating intermediary role
• Communication with foreign buyer/Indian seller
• Commission agreements
• Export documents filed with GST returns

4. Invoice Correctly:

• Mention “Export of Service” on invoice
• Indicate place of supply as outside India
• Quote GST rate as 0%
• Include proper export documentation references

Documentation Checklist:

✅ Contract/Agreement showing intermediary role
✅ Export invoice (of underlying goods exported)
✅ Shipping bill with Let Export Order (LEO)
✅ Bill of Lading or Airway Bill
✅ Foreign Inward Remittance Certificate (FIRC) or Bank Realization Certificate (BRC)
✅ Communication trail with foreign buyer
✅ Commission invoice clearly stating export facilitation
✅ GSTR-1 filing with proper export entries

Common Scenarios Clarified

Q1: I arrange exports but also handle some domestic deals. How do I differentiate?

Answer:

• Export-related services: 0% GST (zero-rated)
• Domestic transaction services: 18% GST

Maintain separate invoicing:

• Clear marking on each invoice
• Proper documentation for export deals
• Segregated accounting

Q2: The foreign buyer pays me, but the export is from another Indian supplier. Is it still 0% GST?

Answer: YES! As long as:

• There’s an actual export from India
• You facilitated/arranged it
• You can prove the connection with documents

Your location or payment source doesn’t matter – the underlying transaction (export) determines GST treatment.

Q3: I provide market research for a foreign client about Indian market, but no actual export happens. Is it 0% GST?

Answer: IT DEPENDS:

If research is for:

• Facilitating future exports from India → Likely 0% GST (export-related)
• General market intelligence not tied to exports → Likely 18% GST (general service to foreign client)

Best Practice: Get advance ruling if unclear, or consult a GST expert.

Q4: I’m a customs broker handling export clearances. Is my service 0% GST?

Answer: YES! Customs clearance for exports is directly export-related intermediary service.

GST Treatment: 0% (zero-rated) ✅

Documentation: Keep export shipping bills and clearance certificates.

Q5: Foreign buyer pays me in USD. How do I show 0% GST in INR invoicing?

Answer:

Invoice Format:

Services: Export Facilitation

Amount: USD 6,000 (₹5,10,000 @ ₹85/USD)

GST @ 0% (Export of Service): ₹0

Total: ₹5,10,000 (USD 6,000)

Key Points:

• Convert to INR for GST return filing
• Use RBI reference rate or actual realization rate
• Maintain FIRC showing actual receipt

Practical Tips for Intermediaries

✅ Do’s:

1. Document Everything:

• Every export deal you facilitate
• Contracts clearly stating your role
• Export documents (shipping bills, BOL, FIRC)

2. Invoice Correctly:

• Mention “Export of Service”
• Show 0% GST explicitly
• Reference export documents

3. File GSTR-1 Accurately:

• Report in “Exports” section (Table 6A)
• Don’t mix with domestic services
• Include invoice-wise details

4. Keep Proof of Export:

• Shipping bills with LEO
• Foreign payment proof (FIRC/BRC)
• Communication showing facilitation role

5. Maintain Separate Records:

• Export deals vs domestic deals
• Clear segregation in books
• Easy audit trail

❌ Don’ts:

1. Don’t Mix Services:

• Keep export facilitation separate from general consultancy
• Different invoicing for different services

2. Don’t Skip Documentation:

• Every 0% claim needs backing documents
• Missing proof = dispute risk

3. Don’t Assume All International = Export:

• Service to foreign client ≠ always 0%
• Must be specifically related to India’s exports

4. Don’t Ignore Compliance:

• File returns on time
• Report export services correctly
• Respond to queries promptly

Conclusion: End of an Era of Confusion