Back-Office Relief: Outsourced Services Won’t Attract 18% GST

The government has clarified that services outsourced to India or carried out in the country for foreign entities will not be treated as intermediary services, and hence not face 18% goods and services tax (GST), a relief for the country ‘s $180 billion back-office sector.

Approved by the GST Council on Friday, the clarification will free up hundreds of crores in tax refunds to entities in the information technology (IT), IT-enabled services (ITES), financial service, and research and development sectors as well as resolve the four-year-old issue that has led to large-scale litigation.

Tax authorities had begun treating back-office services providers, or business process outsourcing (BPO) entities, as intermediaries, denying export status to their services to overseas entities. Exports are zero-rated under GST and not liable to the tax while intermediaries face an 18% charge.

There are more than 200 companies involved in disputes over the definition of ‘intermediary’ services. The circular provides five prerequisites to define what service will qualify as an intermediary service. S-ET

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