IT, ITeS cos may get to claim input tax credit for services delivered overseas

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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.

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