Under GST, intermediary services are subject to a special place-of-supply rule that treats the supplier’s location as the place of supply, even in cross-border transactions. This deviation from the general recipient-based rule has significant implications for export eligibility and GST liability. As a result, such transactions may not qualify as exports despite being cross-border, thereby affecting zero-rating benefits and overall tax planning for service providers.
What is an intermediary under GST?
As per Section 2(13) of the IGST Act, an intermediary is a service provider who:
- Coordinates or enables the provision of products or services among two or more parties
- Does not supply such goods or services on its own account
Key characteristics include:
- Three parties are involved: the supplier, the recipient, and the intermediary.
- The intermediary acts as a facilitator rather than the principal supplier.
- The consideration is typically structured as a commission.
If a person supplies services on a principal-to-principal basis, they are not considered an intermediary.
“Place of supply” rules for intermediary services
Under Section 13(8)(b), the place of supply for intermediary services is deemed to be the location of the supplier. This provision operates as a statutory exception to the general rule under Section 13, which ordinarily treats the recipient’s location as the place of supply for services.
Why is this rule important?
The place of supply determines:
- Whether the transaction qualifies as an export of services
- Whether GST (CGST + SGST or IGST) is payable
- Whether zero-rating benefits apply
Note: In the Budget 2026, the government has proposed to drop Section 13(8)(b) to simplify taxation and address the issues faced by export service providers. After the law is enacted, the recipients' locations will be treated as the place of supply.
Impact of intermediary place of supply rules on export of services under GST
For a service to qualify as an export under GST, all five conditions under Section 2(6) of the IGST Act must be satisfied, including:
- The supplier is located in India.
- The recipient is located outside India.
- The place of supply is outside India.
- The supplier gets the payment in convertible foreign exchange (or permitted INR)..
- The supplier and recipient are not establishments of the same entity.
For intermediary services, the place of supply is currently deemed to be the location of the service provider (i.e., India). Consequently, the requirement that the place of supply be outside India is not met, and such services do not qualify as exports under GST. This position, however, is expected to change once the government notifies and implements the new law.
When is a service not considered an intermediary service?
A service is not classified as intermediary if
- The supplier provides services on their own account.
- There are only two parties involved.
- The service provider assumes principal responsibility.
For example, outsourced back-office support services provided directly to a foreign company on a principal-to-principal basis are not intermediary services.
GST Compliance Risks and Litigation Exposure
Intermediary classification has been heavily litigated because:
- It affects export benefits.
- It impacts refund eligibility under zero-rated supplies.
- It influences GST liability in cross-border transactions.
Incorrect classification can lead to:
- Tax demands
- Interest liability
- Refund rejections
- Prolonged departmental disputes
Businesses engaged in cross-border commission, sourcing, marketing or liaison activities must carefully evaluate their contracts.
How can businesses ensure compliance?
To manage intermediary service risks:
- Review contractual terms to determine whether a principal-agent relationship exists.
- Analyse the scope of work and responsibility clauses.
- Maintain documentation demonstrating the service nature.
- Conduct periodic GST position reviews for cross-border contracts.
Conclusion
Sustained compliance in cross-border service arrangements requires more than correct invoicing; it demands consistent classification, documented contractual intent and system-level controls. Accounting platforms such as TallyPrime can support this discipline by enabling structured tax treatment and transaction-level traceability, helping businesses manage intermediary risks with greater confidence.
