GST Export Rule Changes Bring Relief for IT Firms, GCCs as Council Tackles Long-Running Tax Disputes

Indian technology and services companies have received greater clarity on how some of their overseas work will be treated under GST, after the GST Council approved changes addressing two issues that had been a source of uncertainty for exporters. 

The changes cover services delivered to foreign customers through an Indian company’s own overseas branch as well as certain work carried out in India on goods belonging to an overseas client. 

For IT companies, consulting firms, engineering businesses and global capability centres, the changes could make it easier to qualify for export benefits and claim refunds of GST paid on business inputs. 

Overseas Branches Will No Longer Create the Same GST Hurdle 

One of the changes addresses companies that use their own overseas branches to serve foreign customers. 

Until now, the structure could create difficulties because GST export rules included a condition involving the supplier and recipient being establishments of different persons. 

That became an issue when an Indian company provided services through its own foreign branch. 

The GST Council has now removed that restriction. The focus will instead be on whether the ultimate customer is located outside India. 

The change is relevant to large Indian technology exporters, including companies that deliver services globally through overseas offices. 

Industry body Nasscom welcomed the decision, saying the issue had been raised with the government for some time. 

Subject to other export conditions being satisfied, Nasscom expects the change to reduce uncertainty, disputes and working-capital costs for companies.

Work on Foreign-Owned Goods in India Gets Export Treatment 

The Council has also addressed another situation faced by research, engineering and specialised service companies. 

An overseas customer may send equipment, prototypes or other goods to India for testing, repair, certification, research or processing. The work happens in India, but the service itself is being provided to the overseas customer. 

Such transactions could previously face difficulties in securing export treatment because the goods remained in India while the service was performed. 

Under the new approach, this work can be treated as an export of services even when the foreign customer’s goods do not leave India. 

The change is particularly relevant for businesses involved in research and development, engineering and testing. 

GCCs Could Also Benefit 

Global capability centres operating in India are another group expected to be affected by the changes. 

Many GCCs now handle research, engineering and other specialised work for their global organisations rather than limiting their operations to traditional support functions. 

Greater clarity over which services qualify as exports could reduce the tax uncertainty surrounding some of these activities. 

The change could also make it easier for companies undertaking research and engineering assignments in India for overseas customers to recover eligible GST paid on their business inputs.

Export Payment Rules to Align With RBI Framework 

The GST Council has also moved to simplify how export payments are treated. 

The timing for determining when an export payment has been received will now follow Reserve Bank of India rules. 

That removes a situation where businesses could potentially have to deal with different standards under GST and foreign-exchange regulations. 

According to tax experts cited in the report, aligning the two frameworks could allow more legitimate payment routes to qualify when exporters seek GST refunds. 

Faster Refunds Could Ease Pressure on Working Capital 

Refunds are an important part of the changes because exporters can accumulate GST credits on the goods and services they purchase while their exports are generally zero-rated. 

The broader GST reforms approved by the Council include a system under which 90% of refunds for low-risk taxpayers can be processed automatically. 

For service exporters, faster access to eligible refunds could mean less money remaining tied up while claims are processed. 

The Council has also facilitated refunds for service exporters whose costs are largely connected to services and equipment. 

Employee Insurance Tax Credit Brings Another Change for GCCs 

Another decision from the Council concerns employee benefits. 

Input tax credit will be allowed on health and life insurance provided to employees. 

This is particularly relevant for GCCs and other service businesses where employees account for a large share of operating costs and insurance benefits are commonly part of compensation packages. 

The change means eligible GST paid on these insurance expenses will no longer necessarily remain an embedded cost for businesses.

A Long-Running Industry Concern Gets Greater Clarity 

Ahead of the GST Council meeting, Nasscom had specifically highlighted the treatment of services routed through foreign branches and research or testing conducted in India on prototypes supplied by overseas customers. 

The industry body had argued that the way a company structures its overseas presence should not by itself determine whether a service delivered from India qualifies as an export. 

It had also raised concerns about cases where an Indian team performs research, engineering or testing on a prototype supplied by an overseas customer but the service does not receive export treatment because the physical item is located in India. 

The Council’s latest decisions address both issues. 

For India’s technology and services industry, the significance is therefore less about a change in GST rates and more about removing ambiguity around cross-border work. 

Companies will still need to meet the other conditions required for export treatment. But for services delivered through overseas branches and certain work performed in India for foreign customers, the rules now provide a clearer route to export benefits and eligible GST refunds.