Intermediary Services Under GST

In simple terms ‘intermediary’ means someone who acts to arrange an agreement between people who are unwilling/unable to communicate directly. Simplifying further, Intermediary can be explained as a firm or a person (such as a broker or a consultant) who acts as a moderator or a link between the parties to a business deal, investment decision, etc. In this article, we look at the applicability and taxation of intermediarly services under

GST. A very simple and easy illustration of intermediary can be a bank which acts as an intermediaries between depositors seeking interest income and borrowers seeking debt capital. Intermediaries are generally specialized in specific area and serve as a channel for the specific market. Implementation of Goods and Service Tax has created huge impact on the taxability of ‘intermediary services’ with reference to the services provided to the recipient located outside India.

Definition of Intermediary as Provided Under GST Law

Definition of intermediary is contained under section 2 (13) of Integrated Goods and Service Tax Act, 2017 and the same is reproduced hereunder for ready reference ; “intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account" Important feature that can be derived from the above definition of ‘intermediary’ are summarized hereunder –

An intermediary can be a broker, an agent or any other person;
An intermediary is a person, who between two or more persons, either arranges or facilitates the supply of goods or services or both;
An intermediary cannot change the nature of supply as provided by his principal.

Determination of Place of Supply of Service In Case of Intermediary Services

In order to correctly identify the tax applicability of GST i.e. whether CGST & SGST or IGST is payable on any transaction, it is vital important to know the place of supply of goods or services. Taxability of goods or services would be decided on the basis of the place of supply of the said goods or service. Provision of place of supply of service in case of intermediary are specifically contained under section 13 (8) of Integrated Goods and Service Tax Act, 2017 and the same is summarized hereunder for ready reference – Section 13 (8) of the IGST Act states that – The place of supply of the following services shall be the location of the supplier of services, namely : (a) Services that are supplied by a banking company or a financial institution or a nonbanking financial company to its account holders; (b) Intermediary services; (c) Services that consist of hiring of the means of transport up to a period of one month. Such means of transport includes yachts but excludes aircrafts and vessels. Hence on the basis of above the provisions of section 13 (8)(b) it is pretty clear the place of supply of the intermediary service would be location of the supplier of services.

Export of Service Vis-à-vis Intermediary services provided to recipient located outside India

In order to classify as ‘export of service’, as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India. In case of specific provisions of the ‘place of supply’, affecting the ‘intermediary services’, as narrated hereinabove, the place of supply shall be location of the supplier of services and hence it being the soul reason that ‘intermediary services’ cannot be classified as ‘export of services’ resulting thereby that the benefits available under ‘export of services’ cannot be availed by the intermediary service provider.

Determination of Inter-state Or Intra-state Supply In Case of Intermediary Service

Inter-state provisions – Inter-state provisions are contained under section 7 of the Integrated Goods and Service Tax Act, 2017 and since none of the specific provisions are applicable, residuary provision contained under section 7 (5) (c) shall be made applicable in the case of intermediary service. Said provisions of section 7 (5) (c) states that inter-state supply of goods or services or both in the taxable territory shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce, however, the same should not be an intrastate supply and should not be covered elsewhere in section 7 of the Act. Intra-state provisions – Section 8 of the Integrated Goods and Service Tax Act, 2017 deals with the provisions of intra-state. In current situation, applying the provisions of section 8 (2) which states that Subject to the provisions of section 12, in case where the location of the supplier and the place of supply of services are in the same state or in the same union territory, the supply of service shall be treated as intra-state supply. The above provisions of inter-state supply and intra-state supply has clear implications in case both the recipient and the supplier of services are located in India, however, the situation needs a bit more analysis in case the recipient of service being located outside India. When the recipient is located outside India provisions of section 7 (5) (c) shall be applicable reason being that as per intra-state provisions [section 8(2)], the said provisions are subject to the provisions of section 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India. Concluding thereby that in case the ‘intermediary services’ are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IGST is payable under such transaction.

Applicability of GST on Income Earned By Intermediary

Intermediary generally charge commission against the services provided by them. The commission income so earned is subjected to GST and all the provisions of GST law is applicable accordingly.