Introduction
The 55th Goods and Services Tax (GST) Council meeting may mark a significant turning point for intermediaries in India, such as brokers, agents, and online bidding portals that provide services to entities abroad. A proposal to classify these intermediaries as exporters could provide substantial tax relief by making their services zero-rated under GST.
Currently, intermediary services are taxed at 18% under the Central GST Act. The proposal involves amending Section 13(8)(b) of the Integrated GST Act, which would remove the financial burden and create a level playing field for Indian intermediaries compared to their global counterparts.
Proposed Amendment to Section 13(8)(b)
Section 13(8)(b) of the Integrated GST Act stipulates that the place of supply for intermediary services is the location of the service provider. This classification prevents these services from being treated as exports under Section 2(6) of the IGST Act, resulting in a GST levy of 18%.
If the proposed amendment is enacted, intermediary services would be treated as exports and qualify as zero-rated. This change would:
- Eliminate the 18% GST currently imposed on intermediaries.
- Drop pending show-cause notices (SCNs) worth Rs 3,357 crore issued to these service providers.
- Provide a competitive edge to Indian intermediaries in global markets.
Impact on Key Sectors
The proposed change is expected to benefit a wide range of intermediaries, including:
- Commodities Market Intermediaries: Brokers and agents in textiles and leather goods industries, who often deal with international clients, stand to gain significant relief.
- Online Bidding Portals: Platforms like Mjunction, ONDC (Open Network for Digital Commerce), and MSTC could see reduced tax burdens, enabling smoother operations and greater competitiveness.
Expert Opinions
Tax experts have welcomed the proposal, emphasizing its potential to align intermediary services with export benefits. According to one expert:
“The 18% GST burden on intermediaries is unfair as recipients abroad cannot claim input tax credit. This amendment will rectify the imbalance and encourage growth in the intermediary services sector.”
The current tax structure also creates an unnecessary financial burden on Indian suppliers, limiting their ability to compete globally. Experts believe that zero-rating these services will foster growth and encourage foreign investment in India.
Additional Developments: Input Tax Credit Simplification
In parallel, the GST Council’s law committee has proposed simplifying the input tax credit (ITC) process through the Invoice Management System (IMS). This system aims to streamline GST liability tracking and reconciliation. However, delays in accounting timelines have created financial stress for suppliers compelled to pay liabilities prematurely. Simplified ITC provisions could address these challenges and enhance compliance efficiency.
Case Study: Relief for Textiles and Leather Goods Brokers
To illustrate the impact, consider brokers in India’s textiles and leather goods industries. Many of these intermediaries facilitate trade with overseas buyers but face steep GST liabilities. The amendment would remove these liabilities, enabling brokers to offer competitive pricing and attract more international clients.
Conclusion
The GST Council’s proposed amendment to Section 13(8)(b) could bring transformative tax relief to intermediaries in India, fostering growth and leveling the playing field in global markets. Combined with the simplification of ITC processes, these measures demonstrate a proactive approach to reducing tax burdens and enhancing compliance efficiency.