Exporter of services raised issue that, what would be tax treatment if Exporter of services outsourced a portion of the services contract to another person located outside India, which is usually happened in business?
Let’s say Mr. A India has received a contact from Mr.B. Canada for supply of services of which Mr.A outsourced a portion of contract (say 40% of contract value) to Mr.C. China. Further consideration of services is also paid 60% in India and 40% in China.
Now lot of question arises after reading a simple example:
- What would be export of services (60% of contract provided by Mr.A or 100% of contract)?
- Would there be import of services?
- Do I have to pay GST?
For this transaction department has clarified that, In this case 100% of contract value will be considered as Export of Services and services provided by Mr.C to Mr.B will be treated as Import of services for Mr.A.
Under the GST law, service receiver (i.e. Mr.A) is liable to pay IGST on reverse charge basis on the value of services provided by Mr.C. to Mr.B. (Which is 40% of contract value).
Furthermore said amount would be eligible for taking input tax credit.
Transaction always looks simple but simple can often be complicated.
Here is below the clarification circular issued by department:
Subject: Clarification on export of services under GST – Reg.
Representations have been received seeking clarification on certain issues relating to
export of services under the GST laws. The same have been examined and the clarifications
on the same are as below:
1. Where an exporter of services located in India is supplying certain services to a recipient located outside India, either wholly or partly through any other supplier of services located outside India, the following two supplies are
(i) Supply of services from the exporter of services located in India to the recipient of services located outside
India for the full contract value;
(ii) Import of services by the exporter of services located in India from the supplier of services located outside
India with respect to the outsourced.
Thus, the total value of services as agreed to in the contract between the exporter of services located in India and the recipient of services located outside India will be considered as export of services if all the conditions laid down in section 2(6) of the Integrated Goods and Services Tax Act, 2017 (IGST Act for short) read with section 13(2) of the IGST Act are satisfied.
2. It is clarified that the supplier of services located in India would be liable to pay integrated tax on reverse charge basis on the import of services on that portion of services which has been provided by the supplier located outside India to the recipient of services located outside India. Furthermore, the said supplier of services located in India would be eligible for taking input tax credit of the integrated tax so paid.
3. Thus, even if the full consideration for the services as per the contract value is not received in convertible foreign exchange in India due to the fact that the recipient of services located outside India has directly paid to the supplier of services located outside India (for the outsourced part of the services), that portion of the consideration shall also be treated as receipt of consideration for export of services in terms of section 2(6)(iv) of the IGST Act, provided the:
(i) integrated tax has been paid by the supplier located in India for import of services on that portion of the services which has been directly provided by the supplier located outside India to the recipient of services located outside India; and
(ii) RBI by general instruction or by specific approval has allowed that a part of the consideration for such exports can be retained outside India.
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