IT & ITES Industry May Reformed in Upcoming GST Council Meeting

The government is looking upon reforming the set of provisions regarding tax that is allotted to the intermediary service providers (ITs) making it tax-exempt. Included in the list are services from BPO, export services, IT/IT-enabled services and various back-office assistance extended to foreign organizations.

The issue will be a subject of discussion in the next 38th GST Council Meeting The Goods and Services Tax (GST) Council is concerned about meeting revenue targets, as a consequence of which it will start extensively reviewing the GST rate to be held on 18 December 2019, said government official.

Lack of clarity has forced tax authorities to consider IT Firms Back Office services for foreign clients as a domestic service rather than counting it under the league of exports (as services extend outside India). Though the issue was clarified through a government circular in July, tax authorities continue to extend controversial notices just like the one came last week.

“A more permanent solution would be amending the definition itself,” the official said.

The government is well informed that ITeS like call centers and other outsourcing agencies within the premises are already serving foreign entities on a less margin scale and provide jobs to million talents who should not lose their competitive edge and opt to work in other countries.

Until there is no clarification on the issue the tax authorities are identifying the sector as an agent or broker who facilitates the supply of goods and services Get to know GST provisions and rules on the free supply of goods. Also, we have included rules regarding ITC reversal on free supplies of goods and services or both between the two parties (supplier and consumer). But it does not include the person who supplies goods, services or securities to his own account outside India.

The industry has knocked the doors of the parliament several times seeking solutions regarding tax levy on their services which is a huge challenge for them. The issue is all set to go to the law committee under GST Council and finally be addressed in front of the Council.

The issue rouse following the approval of Maharashtra Appellate Authority for Advance Ruling (AAAR) With the mission to provide certainty and uniformity to all the taxpayer, GST Council is looking forward to setting up a national bench of the Appellate which stated in February that the back-office support extended by the ITeS, BPO, etc. will not be counted under “export of service” rather will be treated as an entity facilitating supply of goods and services between overseas companies and customers. In the opinions of AAAR, such services come under the league of intermediary services and tax will be charged on such under GST.

The government took the initiative to clarify the issue through a circular in July, but the circular lagged behind in its explanation whether the ITeS are carrying out intermediary services or direct exports to the concern of tax authorities. Therefore the issue remained unsolved for the $ 180 Billion plus sector and the tax authorities used it as a general principle and issued notices to IT Firms. Companies operating in SEZ came in bounds of this unsettled provision.

The formulation examined in September needed a relook as a more permanent solution is required. Taxes on exports are neutralized through refunds, as a principle, says government officials.