Indian firms earning commissions by connecting domestic suppliers with foreign buyers have faced a persistent GST issue since 2017. Although the service was cross-border and the client was located abroad, 18% IGST still applied. Foreign clients could not recover this tax, and input tax credit on the firm’s own costs accumulated without utilisation.
The Finance Act, 2026, which received Presidential assent on March 30, 2026, removes Section 13(8)(b) of the IGST Act with effect from that date. Consequently, the place of supply for intermediary services now falls under the default rule in Section 13(2), namely the recipient’s location. Where the recipient is outside India, such services can qualify as exports. Practitioners should continue to monitor CBIC notifications for further operational clarification.
What is an Intermediary Service Under GST?
Section 2(13) of the IGST Act defines an intermediary as a broker, agent, or any person who arranges or facilitates a supply between two or more parties without providing the main service.
CBIC Circular No. 159/15/2021-GST outlines three conditions
- There must be at least three distinct parties
- The intermediary must facilitate the supply without providing the main service
- A person who performs part of the main service qualifies as a principal supplier, regardless of contractual wording
For example, a Bengaluru-based IT firm that develops software for a US client acts as a principal supplier. However, if the same firm connects that client with third-party engineers and earns a placement commission, it likely qualifies as an intermediary. The Finance Act, 2026 does not alter this classification test; it only changes the applicable place of supply.
Eligibility Criteria for Export Status
To qualify as an export under Section 2(6) of the IGST Act, the following five conditions must be satisfied:
- Supplierlocation: The supplier must be located in India.
- Recipient location: The recipient must be located outside India.
- Place of supply: Determined under Section 13(2), this now follows the recipient's location.
- Payment: Received in convertible foreign exchange, or INR, where the RBI permits.
- Establishment: Supplier and recipient cannot be separate establishments of the same legal entity.
Failure to meet any one of these conditions disqualifies the export claim. Service agreements must clearly describe the facilitation role. Vague descriptions such as “consulting” or “support” create scope for classification disputes.
When Can Export Status Be Denied?
The amendment reduces the tax burden. It does not reduce scrutiny. Authorities challenge export claims on the following grounds:
- The contract reflects principal service delivery rather than facilitation
- FIRC amounts do not reconcile with specific invoices
- The service is treated as performed in India based on the location of execution
A reclassification means IGST demand, interest, and full ITC reversal. Understanding when ITC gets denied despite tax being paid matters before filing refund claims. Businesses should address classification issues before invoicing, as post-assessment corrections are significantly more complex.
Practical Impact: Mumbai and Bengaluru Firms
Consider a Bengaluru firm that sources third-party technology vendors for a US client and earns a sourcing fee. Under the earlier regime, this fee attracted 18% IGST, which the client could not recover. Following the 2026 amendment, the same fee qualifies as a zero-rated export.
The firm can now issue invoices without IGST under a Letter of Undertaking and claim refunds of input tax credit on expenses such as rent, software subscriptions, and professional services.
Substance remains critical. A firm delivering a research report acts as a service exporter, whereas a firm arranging introductions between a foreign buyer and Indian vendors functions as an intermediary. Each classification attracts distinct GST treatment and documentation requirements.
Export Refund and ITC Claim Process
- Renew the Letter of Undertaking for FY 2026–27 before issuing invoices
- Issue zero-rated invoices with LUT reference and without IGST
- Report exports in Table 6A of GSTR-1 and update bank realisation details
- File Form RFD-01 within two years from receipt of foreign exchange
- Prepare Statement 3 using the offline utility with exact invoice matching
- If Form RFD-03 is issued, refile a corrected application promptly, as the limitation period continues from the original date
Our regulatory compliance framework guide covers documentation that holds up at this stage.
CLC Checklist and Litigation Risk
Increased scrutiny of fake ITC claims often coincides with export classification disputes. Before issuing invoices, ensure the following:
- Contract clarity: Clearly define the facilitation role and parties involved
- FIRC mapping: Match each remittance to a specific invoice
- Transition review: Assess contracts spanning March 30, 2026, based on time of supply
- Retroactive claims: Seek legal advice before filing for pre-amendment periods
- Ambiguous cases: Obtain professional review where classification remains uncertain
Conclusion
The Finance Act, 2026 provides long-awaited relief to Indian intermediaries by enabling cross-border facilitation services to qualify as exports. However, compliance remains critical. Accurate classification, robust documentation, and adherence to refund procedures are essential to realise the benefits.
Firms that align their contracts and processes with the amended framework will improve cash flow and global competitiveness. Those that rely solely on the legislative change without strengthening compliance will continue to face scrutiny under revised grounds.
Businesses that have not reviewed their GST position since March 30, 2026 should do so immediately. For a firm-specific GST export classification review or to defend a show-cause notice, contact the CLC team before the next return is filed. Official circulars and updated guidance are at cbic.gov.in.
Frequently Asked Questions
What is intermediary services GST export 2026 in simple terms?
When an Indian firm earns a fee for connecting a domestic supplier with a foreign buyer, that fee is now treated as an export under GST. No GST is charged to the foreign client, and the Indian firm can claim a refund of tax paid on its own business costs. Before 2026, the same fee was taxed domestically regardless of where the client sat. The Finance Act 2026 fixed this by removing Section 13(8)(b) of the IGST Act.
Can a GST refund be denied for intermediary services?
Yes. Where the officer finds the claim inadmissible, a show-cause notice is issued in Form RFD-08. The taxpayer replies in Form RFD-09 within 15 days, or such other time as the officer specifies. The officer then passes a final order in Form RFD-06. Common grounds for rejection are that the contract reads as principal-supplier, FIRC amounts do not match invoices, or the service is treated as performed in India.
What documents are needed for GST export benefits?
A valid LUT, zero-rated invoices with the LUT reference, FIRCs matched to individual invoices, export invoices in Table 6A of GSTR-1, and Statement 3 through the RFD-01 offline utility. A short note on the intermediary nature of the arrangement is also worth including.
How does the 2026 rule help IT and consulting firms in Bengaluru?
Bengaluru IT staffing firms, KPOs, and consultancies earning facilitation fees, such as placement commissions, vendor sourcing fees, and deal arrangement fees, can now treat those as zero-rated exports. They were previously absorbing 18% IGST or passing it to clients who could not recover it, making them less competitive globally. The amendment removes that cost and makes accumulated ITC on local expenses refundable.
Can firms claim export benefits for periods before March 30, 2026?
This carries real litigation risk. Both the Bombay High Court's final Division Bench and the Gujarat High Court in Material Recycling Association of India v. Union of India upheld Section 13(8)(b)'s constitutional validity. The Finance Act 2026 contains no saving clause for past periods. Each case needs an individual legal assessment before anything is filed.
For further reading: WTO General Agreement on Trade in Services