GST Council May Grant Exporter Status to Intermediaries for Tax Relief

Date: December 20, 2024
Category: GST Recent News
Read Time: 4 Minutes

The 55th GST Council meeting, scheduled for Saturday, is expected to provide significant relief to intermediaries such as brokers, agents, and online bidding platforms by classifying their services as exports under the GST framework. This change would make such services zero-rated under the GST system.

Proposed Changes to GST for Intermediaries

Deletion of Section 13(8)(b)

  • Proposed Amendment: The fitment committee has suggested removing Section 13(8)(b) of the Integrated GST (IGST) Act.
  • Impact: Intermediaries will no longer pay the 18% GST currently imposed on their services, easing financial burdens and boosting their global competitiveness.

Current Tax Challenges for Intermediaries

Existing Tax Structure

  • Under Section 13(8)(b), the place of supply for intermediary services is the location of the service provider, which is within India.
  • This results in GST being charged at 18%, and as a result, foreign clients cannot claim input tax credit, making Indian intermediaries less competitive globally.

Impacts of the Proposed Amendments

1. Tax Relief for Intermediaries

  • Removal of the 18% GST would provide financial relief to brokers, agents, and online platforms like Mjunction, ONDC, and MSTC.
  • This will create a level playing field for Indian intermediaries versus their foreign counterparts.

2. Show-Cause Notices (SCNs) Dropped

  • SCNs worth ₹3,357 crore issued to intermediaries could be rescinded once the amendment is implemented.

3. Boost to Key Sectors

  • Industries such as textiles and leather goods, which heavily rely on intermediary services, stand to benefit significantly from the zero-rating.

Expert Opinions on the Proposed Reforms

Tax Expert’s View

  • Services provided by agents should qualify as exports under Section 2(6) of the IGST Act and be zero-rated.
  • The removal of Section 13(8)(b) will align the treatment of intermediary services with export services and remove unnecessary tax burdens.

Challenges with Current System

  • Recipients of such services abroad cannot claim input tax credit, making the 18% GST a direct cost.
  • Therefore, simplification is essential to reduce compliance challenges for Indian businesses.

Additional Recommendations

Input Tax Credit Simplification

  • The law committee has recommended streamlining input tax credit claims via the Invoice Management System (IMS).

Challenges

  • Current accounting and reconciliation processes often result in suppliers paying GST liabilities they shouldn’t owe.
  • Furthermore, simplification will address these timing issues and reduce financial stress for suppliers.

Conclusion: A Step Towards Simplification

If approved, these changes could revolutionize the tax landscape for intermediaries, boosting their competitiveness in the global market while reducing administrative burdens. The GST Council’s decision could also set a precedent for further reforms aimed at easing GST compliance for Indian businesses.

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