GST Outsourcing
Definition
GST Outsourcing
Goods and services tax in outsourcing is the indirect tax deciding whether cross-border service work is zero-rated or taxed at home. India’s intermediary trap was removed in 2026, changing the economics for every Indian provider serving overseas clients.
Goods and services tax systems operate in India, Singapore, Australia, Canada, New Zealand and elsewhere. The label is shared; the rules are not.
What they have in common is the export principle. Services consumed outside the country should not carry domestic tax — exporters charge nothing and recover the tax on their inputs.
The difficulty has always been deciding where a service is consumed — when the work happens in one country and the benefit lands in another.
Key takeaways
- Exported services are generally zero-rated rather than exempt, which preserves input tax recovery.
- India treats export of services as zero-rated under Section 16 of the IGST Act.
- Payment in convertible foreign exchange is a standing condition of Indian export treatment.
- Singapore zero-rates services supplied under contract with, and benefiting, a person outside Singapore.
How it works
Zero-rating and exemption are not the same thing, and the difference decides whether a provider’s margin survives. A zero-rated supply carries no output tax and still allows full recovery of input tax. An exempt supply blocks that recovery.
India’s position is set in Section 16 of the Integrated Goods and Services Tax Act, which makes export of services a zero-rated supply.
Two routes follow from that. The exporter may furnish a letter of undertaking and export without paying tax, or pay the tax on export and then claim it back as a refund.
The Central Board of Indirect Taxes and Customs attaches a currency condition. A supply “will be zero rated if the sale proceeds are realized in convertible foreign exchange”, which is why exporters track remittance evidence as carefully as invoices.
| Jurisdiction | Treatment of exported services | Practical condition |
|---|---|---|
| India | Zero-rated under Section 16 IGST | Proceeds in convertible foreign exchange |
| Singapore | Zero-rated as international services | Contract with, and benefit to, a person outside Singapore |
| Australia | GST-free | Recipient not in Australia when the work is done |
| Canada | Zero-rated | Non-resident recipient, service not consumed domestically |
Singapore draws the line by statute. Services qualify where supplied “under a contract with a person who belongs in a country outside Singapore” and which directly benefit a person outside Singapore at the time they are performed.
India’s long-running exception has now gone. Intermediary services were deemed supplied where the supplier sat, which taxed Indian agents and support units on work done for foreign clients.
That provision was omitted by the Finance Act 2026, which received presidential assent on 30 March 2026. Place of supply now follows the recipient, so the same work qualifies as an export.
Examples
The export test is decided on facts about who contracts and who benefits, not on where the keyboards are. The cases below show how that plays out.
A Bengaluru development centre bills a United States parent for software engineering. The recipient is outside India and payment arrives in dollars, so the supply is zero-rated and input tax on rent and equipment is recoverable.
A Pune firm providing sales support to an overseas principal was treated as an intermediary and charged tax at 18% for years. Following the 2026 reform the same work is an export, which changes its pricing outright.
A Singapore shared-services hub invoices a Jakarta affiliate for finance processing. The contract is with an overseas person and the benefit lands overseas, so the supply is zero-rated.
A Manila operator has no goods and services tax exposure at all — the Philippines runs value added tax instead, and treats qualifying exports under its own zero-rating rules.
Related terms
Indirect tax on outsourced services overlaps with several structural terms that describe where and how the work is delivered. The entries below cover the models and locations where this question actually arises, and where it does not arise at all.
- India BPO: the sector most affected by the export and intermediary rules.
- BPO sector India: the wider industry view of the same market.
- SEZ India: special economic zones, which carry their own indirect-tax treatment.
- Tax outsourcing: contracting out the tax function, including indirect-tax compliance.
- Global capability center (GCC): captive units whose intra-group billing raises this question.
- IT-BPM sector India: the industry classification used in Indian policy.
- Offshore India: the delivery model these rules price.
FAQ
Is zero-rated the same as exempt?
No. Zero-rating charges tax at 0% and preserves input tax recovery. Exemption removes the charge but blocks recovery, which raises the provider’s real cost.
What made intermediary services different in India?
They were deemed supplied at the supplier’s location, so Indian agents serving foreign clients paid domestic tax. That provision was omitted with effect in 2026.
Does the client’s location alone decide export status?
No. Most systems also test where the benefit lands, and some test where the work is performed. Location of the contracting party is necessary rather than sufficient.
Why does foreign currency matter in India?
Because receipt of proceeds in convertible foreign exchange is a condition of export treatment. Rupee settlement can disqualify an otherwise exporting supply.
How does a provider recover input tax?
Either by exporting under a letter of undertaking and claiming a refund of accumulated credit, or by paying tax on the export and claiming that back.
Does GST apply to Philippine providers?
No, the Philippines levies value added tax instead.
Find Indian and Southeast Asian providers that handle their own indirect-tax compliance through the Outsource Accelerator hubs.
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