Since GST was implemented in India, several exporters of services are facing a number of difficulties, foremost being basic understanding and meaning of “Export of Service“, and its related confusions of legal provisions.

In this article, let us discuss and clarify on basic concept of Export of Service and distinctly distinguish Services that Seems to be Export, but are Not Treated as Export of Service under GST. Before proceeding let us first understand the concepts.

What is Meant by Service under GST?

As per Sec 2(102) of CGST Act

“services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged

What is Need for distinction between Goods and Services?

The distinction is necessary because of the following reason:

  • Place of provision
  • Point of taxation
  • Different rate of taxes for supply of goods and supply of services.

How Goods and Services Are Distinguished?

A service is an intangible process that cannot be weighed or measured, whereas a good is a tangible output of a process that has physical dimensions.

Schedule II to the CGST Act, 2017 lists a few activities which are to be treated as supply of goods or supply of services. For instance, any transfer of title in goods would be a supply of goods, whereas any transfer of right in goods without transfer of title would be considered as services.

GST

Whether Software is Regarded as Goods or Services in GST?

As per Schedule II of the CGST Act 2017, following are Treated as Service

5.(c’) :  temporary transfer or permitting the use or enjoyment of any intellectual property right;

5.(d) development, design, programming, customisation, adaptation, up-gradation, enhancement, implementation of information technology software

But, if a pre-developed or pre-designed software is supplied in any medium/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523.

 Whether software is regarded as goods or services in GST

What is Export of Services? How do we determine whether IT services provided by us constitute export of service?

AS per Sec 2(6) of IGST Act: “Export of Services” means the supply of any service when,––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 of the IGST Act, 2017;

what is Export of Services

The supply of any service is considered an export of service, where all the above conditions are met. Therefore, unless all the above conditions are not satisfied a supply of service cannot be regarded as exports and hence would be taxable even when place of supply lies outside India.

 wheter Treated as Export of Services

Cases Seems to be Export, but Not Treated as Export of Service under GST

Let us now discuss different cases that Seems to be Export, but are Not Treated as Export of Service under GST.

Case – 1: Supply of Service to a Person Located Outside India where Place of Supply of Service is in India

Examples :

1. An agent in India of a foreign IT/ITES provider (principal located outside India). For agency services, provided in India he shall get consideration in convertible foreign exchange.

2. A Businessman in India rented out his property in Hyderabad to a person residing in Singapore.

3. Microsoft of US, entered into an Agreement with Indian Provider of Software Services to Deliver such service to Client of Microsoft in India.

In the above Examples though all the conditions are fulfilled except the Place of Supply which is in India, therefore the transactions are Not Treated as Exports

Transaction that seems to be export but not treated as export

Case – 2 : Supply of Service to a Person Located in India where Place of Supply of Service is Outside India

Example : Indian Agents; Consulting Firms Engaging Indian Service Providers for Delivering Services Overseas, like Engineering & Architectural Services; Education & Training Services.

case 2

In the above examples, since the Recipient of Services is in India, therefore even if other conditions are satisfied, the transactions are Not Treated as Export of Service

Case – 3: Supply of Service by Overseas Supplier to a Person Located in India where Place of Supply of Service is Outside India

case 3

Examples:

TCS of India Received an Overseas Contract from UK, then TCS Places Order on another Oversea Firm say from France to Deliver Software Services Directly to a Company in UK.

Here the Service Provider is abroad (Not in India), therefore such Services are Not Treated as Service Exports

Case – 4: Supply of Service to a Person Located Overseas where Place of Supply of Service is Outside India, But Payment Received in Indian Currency

Case 4

Supply of services where consideration is received in Indian currency or a currency other than convertible currency.

For example supply of consultancy service by an Indian consulting firm to an overseas entity, payment for which is made in Indian rupees by Indian branch of overseas entity.

Since Consideration is Received in Indian Currency, the transaction is Not Treated as Export of Service.

Case – 5: Supply of Service to a Person Located Overseas where Place of Supply of Service is Outside India, Payment Received in Foreign Currency, but Supplier & Recipient are Distinct Persons

Who is a Distinct Person?

Explanation 1 to section 8 of the IGST Act, 2017

For the purposes of this Act, where a person has,––

(i) an establishment in India and any other establishment outside India;

(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or

(iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory,

then such establishments shall be treated as establishments of distinct persons.

case 5

When a service is provided by a unit in India to a branch outside India, even though all of the conditions of Sec 2(6) of IGST Act are satisfied, except the condition ‘The supplier and recipient are not establishments of the same person’, such transactions are Not Treated as Export of Services.

As the unit in India and the branch outside India are establishments of the same person, this supply cannot be considered as an export of service.

This also means that supply of service to a branch outside India will not be zero rated and hence, not entitled for refund of Input Tax Credit (ITC)

This supply will also not be a non-taxable supply as it is not listed among the exempt supplies. In the previous tax regime, services provided to overseas branches were treated as non-taxable supplies, as the place of provision of service is outside India. However, such provisions are not available under GST Law and therefore Taxable.

That means Supply of Services by an Indian Unit to a branch in Overseas shall be treated as a taxable supply under GST, and IGST has to be levied at the applicable rate, as the place of supply is outside India.

Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.

Author : SN Panigrahi, GST Consultant, Practitioner, International Corporate Trainer & Author

PMP Trainer, ZED Consultant

Can be reached @ snpanigrahi1963@gmail.com

Author Bio

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27 Comments

  1. Rudresh says:

    Q.1 We are giving services in India behalf of Singapore, every month we are billing all expenses to Singapore with IGST18%, but why we are charging GST . export of services zero rated GST. Please clarify any on this doubt.

  2. Mani Patel says:

    Dear Sir,
    i am senior citizen and stayed in Gujarat.
    I have new start up with proprietary setup where i am planning providing development network design and monitoring and enhancement services in plant process log book and dashboard. my first client is in abroad , and my total business turnover not more then 40 Lacks, my query is should i need GST service number ? or it is mendatory to pay services tax even my total turnover is not more then 30 Lacks. please advice?
    Mani

  3. Merlyn F says:

    Dear Sir,

    I have a query. We are planning to start a mobile digital app business where we will provide services to our customer in Dubai and the invoice will be raised in AED and payment will be made in USD. We are located in India and the service is provided in Dubai. I have the foll queries:

    Is this treated as an Export of services?
    Do we have to apply for an IEC?
    What are the taxes payable to the authorities?
    Do we have to file returns at the end of the year?

  4. JATIN GUPTA says:

    in Case 2: Supply of Service to a Person Located in India where Place of Supply of Service is Outside India
    Example : Indian Agents; Consulting Firms Engaging Indian Service Providers for Delivering Services Overseas, like Engineering & Architectural Services; Education & Training Services.

    My issue is: Whether a Service Recipient is Eligible if “IGST” charged on such invoice?

  5. satish bhatt says:

    we have received a contract from “The Nature Conservancy” (TNC), a not-for-profit organisation based in USA. Other facts are as follows:

    – India office: They have an operational office in New Delhi, but their India registrations are under process

    – Invoices will be raised in USD, Payment will be made in USD

    – Study involves travel to Madhya Pradesh, data collection and then submission of report vide email.

    – Travel is directly reimbursable (on submission of original bills), upto the budgeted limit – Travel (air/rail, hotel accommodation, food) bookings/receipts/payments will be in INR, no clarity on currency of invoice.

    TNC is saying that they are not paying GST to TERI and a couple of other Indian organisations as well, considering the case comes under export of services. Please confirm regarding the applicability of GST in this case – whether it will be considered under export.

  6. Sarat Kumar Chhotaray says:

    MrA & Mr B are two friends. Mr A started up a new company in India and engaged few employees. Mr B went to USA and formed a company at USA. Then Mr A helps B by engaging his Indian staffs who recruited in USA.By this way Mr B earns money from the USA Govt/Company. Then Mr B gives curtain portion of earning to Mr A for payment to his employees. Mr B send money to Mr A’s company account.

    Whether GST or Income Tax is payable?

  7. ANOOP TALWAR says:

    I have yet to receive an adequate reply from you to my earlier mails of weeks ago. You promised to reply but have not done so as yet.

    There is a major correction required on your website re export of services (DISTINCT is used wrongly and needs to be corrected).

  8. Hema Desai says:

    Supplier: In India
    Service recipient : Overseas
    Place of Supply: Overseas
    the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 of the IGST Act, 2017;

    Amount remitted through Trasferwise private Channel in GBP, but when remittance is received it is in INR. Trasferwise was given GBP to dispense in such a way that INR is received directly.

    Is it considered as Export Sales?

  9. payal says:

    Mine is Case – 4: Supply of Service to a Person Located Overseas where Place of Supply of Service is Outside India, But Payment Received in Indian Currency.
    So it is not an export of service and GST will be applicable. But what is the place of supply of service and which GST are applicable?

  10. Jijith says:

    Sir,
    We are in construction related business. We are giving service to bhutan client, Money is getting as foreign currency. what and all the formalities to be done while filing GST return

  11. Sri Raj says:

    A company operating in India gets a project contract from client’s authorized agency in USA. They establish a payment agreement to supply capable resources to work on the project. Indian company hires a few freelancer programmers and developers located all around the world. Indian company also hires a Mentor in USA to provide advisory services to these resources so that quality of service is maintained.

    Client’s agency sends their payments in foreign currency to Indian company. Almost all resources are paid in Indian Rupees. Mentor is an NRI and wants to pay taxes in USA for the payment made in Indian Rupees to NRO account.

    Should Indian company withheld TDS when paying these freelancer resources?
    Is this considered export trade?
    Is GST applicable?

  12. Piyush Shukla says:

    I am going to provide services to UAE based service providers. Place of service will be in India. But none of documents (PO or invoice) shall be mentioned location of service supplied (India). I will be paid in convertible USD. BUT main question is I am going to take man power from man power supplier from India. He will claim GST to me. I am not claiming GST to my client as it is export of services. How will I get ITC?

  13. Ravi Jinwala says:

    Sir,
    We provide the Repairs Maintenance and Marketing Services to our Foreign based Holding Company located outside India, Services performed at Client site in India and we received Fund from Holding Company in INR, Also one of the Director is Common in both Company so I believe it will not satisfied as “export of Services”. so my Question is “Where we can show this Transaction in GSTR 1?, Can we show the same in Export Invoices Table 6A ? or as B2C Supply ?

    Thanks

  14. PSR Prasad says:

    Hello sir: This is with reference to the Foreign company’s Branch operating in India as a R&D center. Serve its parent company at Overseas. All the branch expenses were received as Forex.
    1) Whether the services rendered are taxable under IGST
    2) Can the company claim ITC RFD

    1. PrakashCh says:

      Yes. They will be charged with IGST, since, it do not form as export of services. For payment of the said IGST, u can use ITC. But no refund, since they do not constitute export of services.

  15. mahesh mhetre says:

    Thank You very much. Very good clarity in various scenarios.
    Sir I am small query . What if PAYMENT RECEIVED through PAYPAL A/c .?

  16. SELVAKUMAR says:

    Nice article.

    I have not cleared in taxability. Pls clarify the below case.

    “Supply of Service to a Person Located Outside India where Place of Supply of Service is in India”.

    Which tax is chargeable? Whether IGST or CGST & SGST?

    Thanks in advance.

  17. CHANDAN RAO says:

    Thanks a lot. Very good clarity in various scenarios. Excellent piece of info. I am commsn agent for Trading. we get orders in favour of foreign parties to deliver chemicals directly to Indian parties. we get commsn in FE. As u hv mentioned we can not treat it as Export of services. In GSTR-1 , we have been classifying it as Export of services and figures were added in table 6A.
    Q1. How to correct this?
    Q2. Which table should we use in future?[For FY 18-19).
    We will be much obliged if you could guide us.
    Thanks and regards

    1. snpanigrahi says:

      For making any corrections in GSTR 1, in the subsequent month use Table 9

      For More details Contact me through mail / Mobile

  18. GAGANDEEP KUMAWAT says:

    SIR, IF A REGISTERED PERSON PROVIDING BPO/KPO SERVICES TO A PERSON LOCATED IN UNITED STATES FROM INDIA, THE CONSIDERATION IS CONVERTIBLE FOREIGN CURRENCY.
    IS THIS TREATED AS EXPORT OF SERVICE??

    1. snpanigrahi says:

      If BPO in India Providing Services to US Company and Place of Service is Outside India and receives Consideration in Foreign Currency then it is treated as Export of Service

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