For nearly a decade, Indian businesses acting as agents, brokers, or commission facilitators for foreign clients were stuck paying 18% GST on their earnings – even when every rupee came in as foreign exchange. The Finance Act 2026, which received Presidential assent on 30 March 2026, finally ends this anomaly by removing Section 13(8)(b) of the IGST Act. Intermediary services provided to recipients outside India are now treated as exports, making them eligible for zero-rated GST treatment. This article explains what changed, who it affects, and exactly what you need to do next.
Quick Reference: Before vs. After Finance Act 2026
| Aspect | Before 30 March 2026 | From 30 March 2026 |
| Place of Supply | Location of supplier (India) | Location of recipient (outside India) |
| GST Treatment | Domestic supply – 18% IGST | Export of Service – Zero-rated |
| LUT Benefit | Not available | Available – supply without GST payment |
| ITC Refund | Blocked / denied in most cases | Full ITC refund claimable under Section 54(3) |
| Key Provision | Section 13(8)(b) IGST Act, 2017 | Section 13(2) IGST Act (default rule) |
What Was the Problem with Section 13(8)(b)?
Under Section 13(8)(b) of the IGST Act, 2017, the place of supply for intermediary services was always the location of the supplier – meaning India. So even if an Indian company was earning foreign exchange by arranging deals for an overseas client, GST law treated it as a local sale and charged 18% IGST.
This created a painful situation. The Indian intermediary could not claim export benefits. No LUT. No refund of accumulated Input Tax Credit. The GST cost had to either be absorbed or passed on to foreign clients, making Indian service providers less competitive than their counterparts in countries where export facilitation is genuinely tax-free.
The provision was challenged repeatedly across multiple High Courts, with conflicting rulings adding to the confusion. The 56th GST Council Meeting (September 2025) finally recommended its removal, and the Finance Act 2026 delivered.
What Has Changed from 30 March 2026?
Section 157 of the Finance Act 2026 omits clause (b) from Section 13(8) of the IGST Act. From 30 March 2026, the place of supply for intermediary services is no longer anchored to the supplier’s location. Instead, it follows the default rule under Section 13(2) – the location of the recipient.
This single change transforms everything. If an Indian agent arranges a deal for a UK-based company and gets paid in British pounds, the place of supply is now the UK. The transaction qualifies as an export of service under Section 2(6) of the IGST Act.
Two Ways to Use the Zero-Rated Benefit
- File a Letter of Undertaking (LUT) before the financial year begins and raise invoices without charging GST
- Pay IGST on the transaction and then claim a full refund under Section 54 of the CGST Act
Either route unlocks the accumulated ITC that was previously blocked, improving cash flow significantly.
Who Benefits from This Change?
The relief is most significant for businesses that facilitate transactions for foreign principals without actually delivering the core service themselves. Key sectors include:
- IT and ITES companies acting as coordination hubs for global operations
- BPO and KPO units providing back-office support to overseas clients
- Global Capability Centres (GCCs) with facilitation roles
- Commission agents and marketing representatives earning foreign currency
- Consultants and advisory firms arranging services for foreign businesses
Example: An Indian firm earning a commission of Rs. 50 lakhs per year from a UK company for identifying and onboarding Indian buyers was earlier paying Rs. 9 lakhs as GST with no refund. From April 2026 onwards, that same arrangement qualifies as an export – zero GST, full ITC utilisation.
Who Qualifies as an Intermediary? (Definition Unchanged)
The Finance Act 2026 only changes the place of supply rule. The definition of ‘intermediary’ under Section 2(13) of the IGST Act remains exactly the same. CBIC Circular No. 159/15/2021-GST continues to apply. The three key conditions to qualify as an intermediary:
- There must be at least three distinct parties – two involved in the main transaction and one facilitating it
- The intermediary must arrange or facilitate the supply, not provide the main service itself
- Sub-contractors who actually perform any part of the main service are not treated as intermediaries
If your business delivers the service directly on a principal-to-principal basis – for example, a software development firm coding directly for a client – you are not an intermediary. You are an independent exporter and were already eligible for zero-rated treatment. This change benefits only those classified specifically as intermediaries under the law.
Watch Out: Reverse Charge on Inbound Intermediary Services
The same amendment that helps Indian exporters creates a new obligation for Indian businesses that use foreign intermediaries. If an Indian company pays a foreign agent or commission facilitator to arrange deals abroad, the place of supply is now India (location of the Indian recipient). This makes the transaction an import of services.
Indian businesses in this position must now pay IGST under the Reverse Charge Mechanism (RCM), issue a self-invoice under Section 31(3)(f) of the CGST Act, and file relevant returns. Input Tax Credit on RCM payments may be claimed if the underlying supply is for taxable purposes.
Key Action Steps for Businesses
| Action Required | Deadline / Priority |
| Re-classify invoices as zero-rated exports from April 2026 | Immediate – do not delay |
| File LUT for FY 2026-27 | Before raising first zero-rated invoice |
| Gather documentation: contracts, foreign client proof, forex receipts, TRC if needed | Essential for refund and compliance |
| Identify foreign intermediary vendors – assess RCM exposure | Review by April 30, 2026 |
| Review past periods – do not assume retrospective benefit | Amendment applies only from 30 March 2026 |
Conclusion
The removal of Section 13(8)(b) from the IGST Act through the Finance Act 2026 is one of the most impactful GST reforms for India’s service export sector in years. Indian intermediaries from BPO firms to commission agents and GCCs can now treat their services to foreign clients as genuine exports, access LUT benefits, and recover blocked ITC. The change is effective from 30 March 2026, applies only prospectively, and brings Indian GST law in line with global destination-based tax principles. Businesses should act quickly: re-classify invoices, file LUTs, build documentation, and assess any reverse charge exposure on inbound foreign intermediary arrangements. Getting this right from the first invoice will prevent compliance headaches and unlock meaningful cash flow savings.
Frequently Asked Questions
Can I claim refund for GST paid on intermediary services before 30 March 2026?
No. The amendment is prospective. It applies only from 30 March 2026. Invoices raised before that date remain governed by the old Section 13(8)(b) rule. Refund claims for past periods are subject to litigation risk and depend on individual facts and court rulings in your jurisdiction.
What if I received advance payment before 30 March 2026 for services to be provided later?
If the time of supply was triggered before 30 March 2026 (e.g., advance received), that portion of the transaction falls under the old rules and attracts 18% GST. Only the portion with a time of supply on or after 30 March 2026 qualifies for zero-rating.
Is the definition of ‘intermediary’ changing under this amendment?
No. The definition under Section 2(13) of the IGST Act and CBIC’s guidance circular remain unchanged. Businesses must still satisfy the three-party arrangement, facilitation role, and non-supply of main service conditions to be classified as intermediaries.
Does this apply to IT companies that were already exporting services?
IT companies that provide services directly on a principal-to-principal basis were already eligible for zero-rated export treatment. This change specifically benefits those classified as intermediaries under Section 2(13) – typically agents, brokers, and commission facilitators acting as a bridge between two other parties.
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