At a time when the Central Government is mulling over granting notional credit to tackle growing exporter woes, a move to allow input tax credit claims on IT export services delivered in collaboration with foreign entities comes as a welcome move just ahead of the new year. However, the proposal needs to receive a green signal by the RBI too before it can be put into practice.
Boost for Business Process Outsourcing Industry
If the proposal is put into effect, major beneficiaries would be IT and ITeS Companies. Most of the companies in this sector enter into joint global contracts which involves foreign entities too.
Read Also: Goods and Services Tax Impact on the Indian IT Industry
- Input Tax Credit can be availed even if the contract is a part delivered by a foreign entity.
- IT and ITeS Companies major beneficiaries.
- GST Council Clarification awaited.
What is Export?
As per trade guidelines, any good or service of value provided or send from India and received by an individual, entity or group in a foreign land as well as consideration are made in convertible foreign exchange is termed as export.
But as Per the New Proposal:
Indian IT Companies delivering services abroad in partnership with a foreign entity can avail full Input Credit benefits irrespective of the project or service having been partially delivered by a foreign entity. The Service Contract must be in the name of the Indian Entity and the client will be furnished a single bill from the Indian Company.
Place of Supply of service is particularly important. It is important for frictionless Input Tax Credit benefits when the majority of the service contract is delivered by the Indian IT Company and only a portion is delivered by a third party from a foreign jurisdiction.
Place of Supply?
RBI permits receipt of foreign exchange based on contract agreements. The condition of export is held true only if the place of supply or location of service in India. In case this is not part of the contract then the credit claim could be a complex affair. And any such denial would have a negative impact on the competitiveness of Indian Companies in the Global marketplace. Last but not least, last weeks GST Council 31st meeting approved setting up of a centralized AAR to address GST export ambiguities. However, key puzzles regarding GST levy on exports remains unsolved for now.
