Introduction
For years, thousands of Indian IT companies, legal process outsourcing firms, and consulting businesses have faced an anomaly in GST law that penalised them for doing exactly what the government wanted — exporting services and earning foreign exchange.
The culprit was Section 13(8)(b) of the IGST Act, 2017 — the "intermediary services" provision. Budget 2026 has now addressed this — but the fix requires careful understanding.
________________________________________
The Problem — How Intermediary Services Destroyed Export Benefits
Under GST law, "export of services" is zero-rated — meaning the Indian company pays no GST and can claim refund of any GST paid on inputs. This is the correct policy: exports should not bear domestic tax burdens.
However, Section 13(8)(b) of the IGST Act classified certain services provided to foreign clients as "intermediary services" — and deemed the place of supply as India (not the foreign destination). Result: the service was not considered an export. GST was payable at 18%. The Indian company, having already agreed to a fixed contract price with the foreign client, absorbed the entire 18% GST.
Who was affected:
________________________________________
Budget 2026 Fix — What Changed
Budget 2026 proposed omission of Section 13(8)(b) of the IGST Act — the intermediary services provision that had been deeming the place of supply as India for certain B2B cross-border services.
What this means:
Before Budget 2026 After Budget 2026
Intermediary services to overseas clients → Place of supply = India Intermediary services to overseas clients → Place of supply = Location of recipient (overseas)
GST payable at 18% Qualifies as export of services; zero-rated
No ITC or refund available ITC/refund claimable
Indian firm bears 18% cost on foreign contract Competitiveness restored
________________________________________
Who Benefits — And By How Much
The Indian IT and services sector exports approximately $280–300 billion annually. Even if only 10–15% was affected by the intermediary classification (a conservative estimate), the tax relief runs to ₹8,000–15,000 crore annually.
Immediate beneficiaries:
________________________________________
Refund Of Past Gst Paid — Is It Possible?
This is the critical question for businesses that have been paying GST on services now reclassified as exports.
The short answer: Retrospective benefit is not automatic. Budget 2026's amendment is prospective — it applies from the date of notification. Past GST paid under the intermediary classification cannot be automatically refunded.
However, if you have pending disputes or litigation where you challenged the intermediary classification, the amendment strengthens your legal position. Pending GST appeals and writ petitions challenging Section 13(8)(b) should be pursued aggressively.
________________________________________
Practical Action For Affected Businesses
1. Review all ongoing export contracts — verify which fall under the new "not intermediary" classification
2. Stop paying 18% GST on qualifying export services from the amendment's effective date
3. Update LUT (Letter of Undertaking) if moving from GST-paying export to zero-rated export structure
4. File refund applications for ITC accumulated on inputs used in newly-qualifying export services
5. For pending litigations — use the Budget 2026 amendment as additional legal ground
________________________________________