GST Rule Change Brings Big Relief For IT Companies

For many years, Indian IT companies faced problems due to GST rules, especially when offering services to clients outside India. The main issue was confusion about the term “intermediary services,” which caused many IT services and IT consultancy providers to pay GST on exports. This created extra costs and legal troubles.

Now, the GST Council has changed this rule. This change gives clear guidance, lowers the tax burden, and helps avoid past confusion. In this blog, we will explain the old rule, the recent update, who it helps, how it benefits companies, expert opinions, and one pending issue.

What Was The Old GST Rule?

Earlier, the GST framework had a category of service providers known as “intermediaries”. An intermediary was defined as someone who helps connect two parties for a business transaction. In simple words, if a company were only facilitating or linking two businesses or customers, it could be called an intermediary.

This became a big problem for IT service companies and IT consultancy providers. Many times, when we were providing services to international clients, tax officers would call our services “intermediary services”. This meant that even if the client was outside India, the services were considered as being delivered inside India.

As a result, IT companies had to pay GST on those services, even though they were exports. Exports are normally supposed to be “zero-rated,” which means no GST is charged, and the company can also get refunds of input tax credit. But due to this intermediary rule, many IT companies lost those benefits.

This rule created several issues. First, companies had to pay more money in taxes unnecessarily. Second, they were not allowed to claim export benefits. Third, tax officers sent many notices questioning the export status of IT companies. Fourth, several IT companies, including large global capability centers (GCCs) and IT consultancies, got stuck in long legal disputes to prove that their services were genuine exports.

Overall, the old rule created unfair conditions. Genuine exporters of IT services and IT consultancy were treated the same as intermediaries, which was not correct. This damaged the business environment and created fear among companies about future tax liabilities.

What Has Changed Now?

The GST Council has now taken a very positive step by changing this rule. The council has removed the old part of the definition that forced “intermediary services” to be treated as domestic, even if the client was abroad. Now, the important factor will be the location of the client, also called the “service recipient”.

This means that if an IT company in India is providing services to a client outside India, it will now be treated as an export. It does not matter if the service looks like an intermediary service. The only thing that matters is that the client is outside India.

This change is very important because it removes the confusion that existed for more than 10 years. Many IT companies were wrongly placed in the “intermediary” category just because of the type of service they were providing. Now they can clearly classify their services as exports and enjoy the proper tax benefits.

Who Will Benefit From This?

This new rule will help a wide range of businesses. IT service companies like ours that work with global clients will get immediate benefits. Companies that provide IT consultancy to international businesses will also see a positive impact.

Global Capability Centers (GCCs), which are Indian centers of large multinational corporations, will benefit because they faced problems earlier in proving export status. E-commerce platforms that provide cross-border digital services will also find it easier to comply with GST rules.

Even professional service firms that act as intermediaries for foreign clients will gain from this change. Basically, any company that provides services to clients outside India, whether directly or indirectly, will now have a smoother tax experience. For companies focused on IT services, this change is a major step forward in making international business easier and more profitable.

How This Helps Companies

The advantages of this GST rule change are very clear and practical. First, companies no longer need to pay GST on export services. This creates immediate cost savings. When companies save money on unnecessary taxes, they can use those funds for business growth, employee benefits, or new technology.

Second, companies can now get all the benefits that are normally available to exporters. This includes input tax credit refunds and classification as a zero-rated supply. This improves cash flow because companies no longer have money stuck in tax-related disputes or compliance.

Third, this change will reduce legal disputes. Earlier, many companies had to fight with tax authorities to prove their services were exports. Now, with this clear rule, there is no scope for confusion.

Fourth, compliance becomes simpler. Companies will spend less time and effort on paperwork and explanations to tax officers. This lowers the risk of mistakes and reduces the administrative burden.

Finally, this change will make India more competitive in the global outsourcing and services market. International clients will find Indian companies more attractive because the tax system is now more straightforward. For providers of IT services like us, this is a real growth opportunity. They can now focus more on delivering value to the clients instead of worrying about tax classification.

What Experts Are Saying

Industry experts and company leaders have welcomed the government’s decision. Ashish Aggarwal from Nasscom said this update removes confusion in classifying IT-enabled services and will lower the chances of future disputes. Amit Maheshwari from AKM Global said it will stop long legal processes and help companies easily claim export benefits.

Gaurav Vasu from UnearthInsight said this is a very helpful step for GCCs, as it supports their export-related work. Earlier, many companies received tax notices about their export status. This rule change will lower such risks and give companies more peace of mind. It is a good move for IT service providers and IT consultancy firms that mostly work with global clients or in international markets.

One Open Question

One big question is still not clear. Will this new rule be used only for future cases, or also for old ones? If it is only for the future, companies may still face problems from old tax issues. But if it also covers past cases, many companies could get relief.

This would reduce their costs and stress. Right now, experts are waiting for a clear update. If it includes old cases, the rule will help the IT sector even more.