IT firms' work for international clients may not always attract IGST

Experts say the ruling may have ramifications for other industries which provide services to foreign clients too, particularly in the IT, consulting, marketing, and recruitment sectors

Services provided by Indian information-technology (IT), marketing, and consulting companies to foreign clients may not always draw integrated goods and services tax (IGST) if a ruling by the Authority for Advance Rulings’ (AAR’s) Telangana Bench becomes a precedent.

The AAR gave its ruling on a specific case of referral services provided by the Hyderabad-based Center for International Admission and Visas (CIAV) to foreign universities and colleges for admitting Indian students. The company does not have any binding agreement with universities, colleges, or students for guaranteed admission in particular places.

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The AAR held these services were not intermediary in nature but exports. This meant that these would not draw integrated GST, which intermediary services would have attracted, said Sandeep Sehgal, partner at tax and consulting firm AKM Global.

 

Experts say the ruling may have ramifications for other industries that provide services to foreign clients, particularly in the IT, consulting, marketing, and recruitment sectors.

BONE OF CONTENTION

AAR gave its ruling on a specific case of referral services provided by the Center for International Admission and Visas (CIAV) to foreign universities and colleges 
 

The AAR held that these services were not intermediary in nature but exports

AAR holds the scope of an “intermediary” did not include a company that supplied services on its own account
 

In the particular case, the company gets referral income or commission in foreign currencies from universities and colleges based on admissions.

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The AAR holds the scope of an “intermediary” did not include a company that supplied services on its own account. In the present case, the company is under a principal-to-principal contractual relation with the foreign universities and colleges and it is providing its independent and main service of marketing and referral to them.

Besides, the company does not influence the selection process of prospective students to a contracted university, it held.

Sehgal said the ruling set a precedent for the classification of services under GST.

The decision paves the way for a broader interpretation that could affect various service sectors engaging with foreign clients, he said.

The AAR said services provided to foreign clients on a principal-to-principal basis such as consulting, IT, marketing and recruitment should not always be deemed as intermediary services, according to Sehgal.