GST for IT Services
GST for IT Services
To clear up various confusions prevailing in the Information Technology enabled Services (ITeS), the Central Board of Indirect Taxes and Customs (CBIC) recently came up with the circular no. 107/26/2019-GST clarifying various issues. The said circular has a far-reaching effect on ITeS/BPO, and the same is explained in the present article.
Before understanding the clarification, it is significant to understand coverage of two important terms, namely ‘Intermediary’, and ‘Information Technology enabled Services’.
The definition of the term ‘intermediary’ is contained under section 2(13) of the Integrated Goods and Service Tax Act, 2017 which means:
- An agent, a broker or any other person who facilitates or arranges the supply of services or goods or both or securities between two or more persons. However, it doesn’t include a person who supplies such services or products or both or securities on his account.
The definition of the term ‘Information Technology enabled Services’ has not been provided under the Goods and Service Tax Law, and hence, reliance has been placed on the definition provided under rule 10TA(e).
As per the said rule, ‘Information Technology enabled Services’ means the business process outsourcing services, which are provided with the assistance or use of the information technology.
- The back-office operations; contact centre services or call centres; legal databases; data processing and data mining; insurance claim processing; payroll; creation and maintenance of medical transcription except medical advice; remote maintenance; support centres; translation services; website services; revenue accounting; remote education except education content development; data search integration and analysis are business process outsourcing services. However, it doesn’t include any research and development services.
Clarification issued by the CBIC
In the circular, the clarification is provided based on various situations/scenario which has been explained in the below table:
|The supplier of ITeS services (backend services) supplies services on his account to the client or the customers of the clients on the clients’ behalf.||Since the services are provided on his account, the supplier will not fall within the ambit of ‘intermediary’.|
The supplier of backend services (located in India) facilitates or arranges the supply of services or goods or both by the client (located abroad) to the customers of the client.
Please note the backend services may include support services, during pre-delivery services, delivery services and post-delivery services.
|Since the services relate to facilitating or arranging the supply of services or goods or both between two or more person, the supplier of such backend services will fall within the ambit of ‘intermediary’.|
|The supplier of ITeS supplies backend services on his account and arranges or facilitates the supply of various support services for and on behalf of the client (located abroad).||
The supplier is supplying two sets of services, i.e. ITeS and various support services.
The Classification of such services as ‘intermediary’ would rest on the facts and circumstances of an individual case. The Classification would also be determined, keeping in view which set of services is the main/principal supply.
Clarification with regard to ‘export of services’
Meaning of the word ‘export of services’ is laid down under section 2(6) of the Integrated Goods and Service Tax Act, 2017. Accordingly, ‘export of services’ means the supply of any service fulfilling the following criteria:
- The supplier of service is located in India
- The recipient of service is located outside India
- The place of supply of service is outside India
- The payment has been received by the supplier in convertible foreign exchange, and
- The supplier of service and the recipient of service are merely not an establishment of a distinct person
It has been clarified that the ITeS services who satisfies all the above-listed conditions and who are not intermediary are eligible to avail the benefit of export of services.