NEW DELHI: IT and ITeS companies would now be able to avail refunds on taxes paid on inputs used in servicing global contracts jointly with their foreign outfits.The Goods and Services Tax Council has agreed to allow input tax credit to service providers even if the contract is part delivered by group entity outside India, in a move seen to boost the business process outsourcing industry.“It has been decided that wherever RBI permits, the transaction input tax credit would be allowed,” said a government official, privy to the deliberations of the GST Council meeting. A clarification to this effect would be issued soon, the official said.Typically, for a service to be termed as an export, it is necessary that it is provided from India and delivered outside India. Therefore, the service provider should be from India and the recipient should be outside India. In addition, the consideration for such services should be received in convertible foreign exchange.When an Indian IT company takes on a contract with a global client for providing IT services across the globe, some part of the service delivery may happen from another jurisdiction. The billing is usually centralised and the global client gets one bill from India towards the services provided to it by the IT company.
Service provided on behalf of the Indian entity, which is the contract recipient, would be deemed to be provided from India, said another government official.Tax experts say it is necessary to consider the fact that many large contracts may not be divisible, hence the place of supply rules should be read harmoniously to extend the export of services benefit where a significant portion of the contract is delivered from India and other requirements are satisfied.“Denial of export benefit in case of global contracts by Indian companies would dent competitiveness of these companies, which operate in the global marketplace and earn significant amount of forex for the country,” said MS Mani, partner at Deloitte India.A CLARIFICATION WOULD HELP“In case a service is contractually delivered from India, while partial delivery happens from one of its overseas entity, the condition for export gets fulfilled as long as the location of service provider is considered in India. A clarification in this regard will make this simpler given that RBI will permit the receipt of foreign exchange depending on the terms of the contract,” said Bipin Sapra, partner at EY.The other key issue of the levy of GST on export of services could not be taken up by the Council on Saturday, a meeting that decided to prune the 28% bracket further and gave inprinciple approval for forming centralised appellate authority for advance rulings to deal with cases of conflicting decisions.
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