Among its most consequential outcomes was a renewed emphasis on export promotion, reflected in the introduction of a streamlined refund disbursal mechanism and the liberalisation of export-related provisions. This direction resonates strongly with India’s technology and IT enabled services (IT–ITES) industry is one of the country’s foremost growth engines, with exports in FY 2024–25 estimated at over USD 224 billion. Deloitte’s flagship survey, GST@8, which captured feedback from a broad spectrum of industry stakeholders, identified the liberalisation of export norms as the second highest tax policy recommendation under the GST 2.0 reform agenda, after GST rate rationalisation.
Flawed vestige of service tax made inroads into GST
The need for export liberalisation had been a long standing ask of the industry with specific plea for dismantling of “intermediary”. India GST follows a well drafted set of rules following the principle of destination-based consumption taxation being the cornerstone of India’s GST regime. However, the regime inherited a legacy provision of “intermediary” from the erstwhile service tax framework thus and this exception carried forward an anomaly.
It may also be interesting to note that 139th Report of the Parliamentary Standing Committee on Commerce (2017) explicitly recognised the risk of mischaracterisation and recommended the removal of the intermediary provision to avoid double taxation and enhance export competitiveness.
Notwithstanding the above, Section 13(8)(b) of the GST Act retained the classification of “intermediary services,” wherein the place of supply was deemed to be the location of the service provider rather than the recipient. This framework effectively denied Indian service providers the benefit of export status when facilitating transactions between foreign parties and embedded unintended costs into global contracts, undermining pricing predictability, and eroding competitiveness of Indian exporters and in the process.
India’s treatment of intermediary services clearly stood in stark contrast to international VAT regimes. Major jurisdictions such as the European Union, United Kingdom, Singapore, and Australia apply the destination principle to cross-border B2B services, taxing them based on the location of the recipient. OECD’s VAT guidelines also reinforce this approach, advocating for neutrality, certainty, and the avoidance of double taxation. India’s deviation from this norm created a regulatory divergence that exposed exporters to classification risks and compliance disputes.
“Intermediary” gives rise to more disputes
While the concept of “intermediary in the Indian taxation regime has been around since the Service Tax regime, the scope and its ambit of its applicability has always been highly disputed. The situation has been no different under the GST regime with litigation becoming even more widespread and adding to operational uncertainty.
The law has been interpreted in widest imagination wherein tax officers sought to tax any sort of export of services from India – ranging from R&D, ITeS, BPO, KPO, tech support services to investment management services. The taxing approach and lack of clarity led to this being an important factor for new setups by MNCs as it was leading to an additional tax disputes or costs of 18% under GST regime, refunds being denied on export services and precious working capital blocked on account of litigation.
To assuage the situation, the GST Council issued a well drafted circular in 2021, delineating five key criteria to identify intermediary services: the presence of three distinct parties, two distinct supplies, a facilitative role by the service provider, absence of independent supply, and the exclusion of subcontracting arrangements.
Despite the GST circular, the industry continued to grapple with issues considering ground level challenges in implementation of the Circular by the tax authorities. Given the dire situation, judicial intervention became instrumental in restoring clarity and correcting the trajectory. High Courts across various States and the Supreme Court issued a series of landmark rulings that excluded various support services such as vendor oversight, quality evaluation, and sales promotion from the scope of intermediary services. These decisions established boundaries and reaffirmed that not all facilitative roles amount to intermediation. By distinguishing core service provision from mere facilitation, the judiciary laid the groundwork for policy recalibration and reinforced the need for structural reform within the GST framework.
Dismantling of “intermediary” paves a new path
In wake of growing number of disputes on account of misinterpretation/ lack of uniform interpretation of the legal provisions and circular, the disdain amongst export community had been increasing proportionately, thereby warranting an immediate and effective resolution. Thus, the recent decision by the GST Council to amend the treatment of intermediary services marks a pivotal moment in India’s indirect tax regime.
In December 2024, the GST Council initiated deliberations on removing of Section 13(8)(b) of GST Act. A Group of Officers was constituted in January 2025 to examine the issue, with a mandate to propose amendments or clarifications that would reduce disputes and ensure parity for Indian suppliers vis-à-vis foreign competitors. The GST Law Committee acknowledged the contradiction between the intermediary construct and the foundational principles of GST, setting the stage for reform.
Resultantly, in a historic decision, the GST Council resolved to delete the place-of-supply provision for intermediary services. Under the revised framework, services provided to recipients located outside India will now qualify as exports, irrespective of the facilitative nature of the transaction. This change restores coherence to the GST framework and aligns it with global norms. For Indian exporters, it heralds a new era of clarity, competitiveness and global integration. It resolves a long-standing anomaly, aligns domestic law with international standards and reaffirms the principle of destination-based taxation.
With India already established as a global hub for service delivery, this reform represents a defining step towards GST 2.0, a more future-ready, growth-oriented framework. Realisation of the true potential of this reform is premised on effective execution through clear legislative amendments, consistent administrative enforcement, and sensible retrospective relief. Together, forward-looking reforms announced during the recent GST Council meeting, can pave the way for the next chapter in India’s service-led growth story and firmly position the nation as a competitive global powerhouse in services.
The writers are Mahesh Jaising, Partner & Indirect Tax Leader, Deloitte India; DP Nagendra Kumar, Senior Advisor, Deloitte India and Apoorva Yadav, Director, Deloitte India.
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