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The term 'Intermediary Services' has been one of the most litigated concepts under India's GST regime, with the technicalities regarding export classification, place of supply rules, and refund eligibility. The Finance Act, 2026 introduced a landmark amendment by omitting clause (b) from Section 13(8) of the IGST Act, 2017, a change that fundamentally alters how these services are taxed.
Before delving into the legal intricacies, it is important to understand the ordinary meaning of the term 'Intermediary', which in common usage, is someone who acts as a link between parties to facilitate an agreement.
Now, let's examine the statutory definition of the 'Intermediary' under Section 2(13) of the IGST Act, 2017 which defines it as follows:
'A broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.'
This definition of 'intermediary' is substantially borrowed from the erstwhile Service Tax regime, with the significant addition of 'securities' within its ambit along with goods and services under GST.
While the statutory definition appeared straightforward, divergent interpretations by tax authorities, advance ruling authorities, and courts led to substantial litigation, particularly in the context of export of service providers.
The prevalent issue that arose before the deciding authorities as to what will be included in the scope of the definition of the intermediary services and what will come under the scope of export of services. Earlier, CBIC Circular No. 159/15/2021-GST dated 20.09.2021 was issued on the recommendations of 45th GST Council meeting, to address the uncertainty and confusion and pursuantly explained the scope of intermediary services and identified the essential tests for determining whether a supply constitutes an intermediary service.
The Real Controversy: Place of Supply
It is to be noted that the real controversy surrounding intermediary services was never the definition itself, but the tax implications arising from the place of supply provisions applicable to such services.
Section 13 of the IGST Act, 2017 governs place of supply where either the supplier or recipient is outside India. The default rule under Section 13(2) deems the place of supply to be the location of the recipient. However, Section 13(8)(b) carved out an exception for intermediary services, deeming the place of supply to be the location of the supplier.
This exception had significant consequences. Services rendered to foreign clients even when consideration was received in convertible foreign exchange were denied export status if classified as intermediary services as the place of supply remained India, subjecting these transactions to GST and denying suppliers the zero-rating and refund benefits available to exports.
It created an economic burden on Indian intermediaries, triggered extensive litigation, and ultimately impacted export competitiveness.
Finance Act, 2026: A Significant Turning Point
Considering the adverse consequences faced by Indian intermediaries, the GST Council, in its 56th Meeting held on 3 September 2025, recommended the omission of the much-debated clause (b) of the Section 13(8) of the IGST Act, 2017. Pursuant to this recommendation, the Finance Bill, 2026 received the Presidential assent on 30 March 2026.
As per the Finance Act, 2026, with effect from 30th March 2026, provision under Section 13(8)(b) of the IGST Act, 2017, that is, Intermediary Services has been omitted. Now, the net effect is such that the transactions similar to intermediary services would come under the default provision of Section 13(2) of the IGST Act, 2017, that is, the PoS would be the location of the recipient of services.
The amendment effectively removes the special place of supply treatment that had long been applicable to intermediary services and shifts the determination of place of supply towards the general rule based on the recipient's location. Consequently, services supplied to overseas recipients may now qualify as exports subject to fulfillment of the remaining statutory conditions.
Export opportunities for major industry stakeholders
Indian intermediaries can now avail export benefits including zero-rating and refunds when providing the intermediary services to foreign clients. When the recipient is located outside India, the PoS shifts from the location of the supplier to the location of the recipient, and consequently, the transaction will come under the ambit of 'export' given the other conditions under Section 2(6) of the IGST Act, 2017 are duly fulfilled.
This represents a major shift for sectors such as:
- Business Process Outsourcing (BPO) and IT-enabled services
- Marketing, sales support, and consultancy
- Sourcing, procurement assistance, and recruitment services
- Online travel agents and education consultancies
Example 1: An Indian Online Travel Agent (OTA) markets hotel rooms for a foreign hotel chain and earns commission in foreign exchange. Previously, this would be taxed as a domestic supply. Post-amendment, if the foreign hotel is the recipient and other export conditions are met, the service qualifies as an export.
Example 2: An Indian education consultancy assists a foreign university with student recruitment in India, earning commission per enrollment. Earlier, this was often classified as an intermediary service with place of supply in India. Now, it can qualify as an export, enabling the consultancy to claim GST benefits.
Impact on businesses procuring intermediary services
On the other hand, Indian entities procuring the intermediary services from overseas cross border suppliers, will now have to oblige with new compliance requirements. With the recent amendment, the PoS for the transaction of procuring services from outside India will be the location of the recipient and accordingly, it will be treated as 'import' of services and that may open another pandora box of litigation and hardship challenges for many industries, such as cotton textile industries, where inverted duty structure is applicable as they are more dependent on exports and the facilitators situated outside India.
Tug of war Between the Department and Business Entities
Over the years, the concept of intermediary services and its GST implications have been the subject of extensive litigation and interpretational challenges before various High Courts, Advance Ruling Authorities, and even the Supreme Court, seeking to address the prevalent issue. Indian businesses providing services to overseas clients have long sought to treat such supplies as exports of services and avail the corresponding GST benefits. However, tax authorities frequently invoked Section 13(8)(b) of the IGST Act, 2017 to classify these supplies as intermediary services, deeming the Place of Supply (PoS) to be in India and thereby denying export benefits.
With the omission of Section 13(8)(b), this long-standing dispute has largely been put to rest. Intermediary services will now be governed by the default rule under Section 13(2), under which services supplied by an Indian entity to a foreign recipient shall qualify as exports of services, subject to fulfillment of the prescribed conditions.
Has the Controversy Finally Ended?
In the light of the above discussion, there cannot be any direct answer to this question.
It can be said that the controversy has finally ended and the prevalent issue has been settled because the special provision of place of supply applicable to intermediary services has been omitted and now, it will be dealt under the default provision of Sub-section (2) of Section 13 of the IGST Act, 2017.
However, the issue relating to the statutory definition and classification of certain agreements as intermediary services or principal-agent services, still remains unchanged and would heavily depend upon the factual matrix of each case.
Concluding the above analysis, it is not wrong to say that the law on intermediary services has travelled from uncertainty to relative clarity. The issuance of clarificatory circulars, evolving judicial precedents, and now the legislative reform through the Finance Act, 2026 have substantially narrowed the scope for disputes.
The omission of Section 13(8)(b) removes the most contentious hurdle, enabling qualifying cross-border services to be treated as exports. This enhances the competitiveness of Indian service providers in global markets and aligns the GST framework more closely with international norms.
However, the classification exercise remains fact-specific. While the export benefits controversy may be addressed, careful structuring of contractual arrangements and documentation will continue to determine the tax treatment of services under GST.
Authors:
1. FCA Archana Jain
B. Com(H) SRCC, DU, L.LB
2. Anshika Singla
Advocate
Please feel free to reach us at [email protected] or 9999009508, in case of any further clarification on the issue of 'Intermediary' or 'export of services'.