Omission of IGST Section 13(8)(b): How Budget 2026 Resets Taxation of Intermediary Services

Budget 2026 proposes a high-impact change in GST law for cross-border services. It targets a single clause, but the effect reaches a wide set of Indian service providers that work with overseas clients.

Clause 141 of the Finance Bill, 2026 seeks to omit section 13(8)(b) of the IGST Act, 2017. It states that the place of supply for “intermediary services” shall be determined under section 13(2), which is the location of the recipient of such services.

This omission matters because the place of supply decides whether a service supply is treated as an export, and whether it is zero-rated under GST. It also decides whether an imported service attracts tax under reverse charge. Section 13(8)(b) sat at the centre of long-running disputes because it created outcomes that differed from the destination-based design of GST.

1) The rule before Budget 2026: why section 13(8)(b) created friction

Under IGST, section 13 applies to services where either the supplier or the recipient is outside India. The default rule under section 13(2) sets the place of supply as the location of the recipient. That rule supports a destination-based model: tax follows consumption.

Section 13(8)(b) carved out an exception for intermediary services and fixed the place of supply as the location of the supplier. This exception pushed many cross-border intermediary arrangements into the Indian tax net, even when the client was outside India and the benefit of the service arose outside India.

This exception created two major consequences.

First, export treatment faced denial in many cases.

Even when an Indian service provider worked for a foreign client and received consideration in foreign currency, the place of supply remained India under section 13(8)(b). This treatment blocked export status and zero-rating for many service providers.

Second, import taxation under reverse charge faced gaps.

When an overseas supplier provided intermediary services to an Indian recipient, the place of supply remained outside India under the supplier-location rule. This structure reduced the reach of reverse charge taxation for that category.

These outcomes produced litigation and compliance stress because the tax consequence turned on whether a service fit the statutory meaning of “intermediary.” Classification disputes expanded across marketing support, lead generation, sourcing, vendor coordination, customer support, and cross-border operational assistance.

2) What Budget 2026 changes: intermediary services move back to the recipient-location rule

Clause 141 removes the supplier-location exception for intermediary services. After omission, intermediary services fall under section 13(2).

That means:

• Place of supply = location of the recipient
• For a foreign recipient, the place of supply sits outside India
• For an Indian recipient, the place of supply sits in India

The Finance Bill states this intent in clear terms: the place of supply for intermediary services will be determined under section 13(2), which is the location of the recipient.

This reset does not grant a special exemption. It restores the default rule.

3) Impact on exports: more services qualify as zero-rated supplies

The omission changes the export outcome for many intermediary service arrangements.

Where an Indian supplier provides intermediary services to a foreign recipient, the place of supply becomes the foreign location under section 13(2). Once the place of supply sits outside India, the service can qualify as an export of services, subject to the export conditions under GST.

From a business standpoint, this produces three direct benefits.

A. Zero-rating becomes available where export conditions are met

A zero-rated export allows supply without output tax under bond or LUT, or supply with tax followed by refund, based on the chosen route.

B. Input tax credit flow improves

Many service providers carry input credits from rent, software, professional fees, and other business costs. When export status is available, refund mechanisms become usable.

C. Pricing and contracting improve

When output GST drops out for qualifying exports, Indian suppliers can price services with lower tax friction and lower working capital stress.

This change matters for India’s services sector because many export-linked business models involve facilitation and support functions rather than end-to-end delivery. The omission converts that structure from a tax risk to a standard export structure, subject to documentation and conditions.

4) Impact on imports: reverse charge becomes relevant for more cases

The same reset changes the outcome for imported intermediary services.

Where an overseas supplier provides intermediary services to an Indian recipient, the place of supply becomes India under section 13(2). This pulls the transaction into the import-of-services framework and triggers tax payment responsibility on the Indian recipient under reverse charge, subject to the IGST provisions that apply to import of services.

This restores parity between intermediary services and other imported service categories. It also removes a category gap that existed due to the supplier-location fiction.

For Indian businesses that buy overseas sourcing support, overseas broking support, overseas marketing facilitation, or overseas deal facilitation, this change increases compliance duties. They must assess reverse charge exposure, pay IGST under RCM where required, and claim input tax credit where permitted.

5) Winners and pressure points across sectors

Clear winners (export side)

• Marketing and advertising agencies that serve foreign principals
• Lead generation and sales support firms that contract with overseas recipients
• IT and platform support providers that run customer operations for foreign clients
• BPO and shared service centres that provide operational support to overseas group entities where export conditions are met
• Sourcing and vendor coordination firms that work for overseas buyers

Pressure points (import side)

• Indian recipients that procure intermediary services from overseas suppliers
• Groups with cross-border support flows that need RCM process and accounting controls
• Businesses with mixed supplies that face restricted input tax credit use

6) What businesses must do next

This amendment improves outcomes when documentation is strong. Businesses must update internal checks.

For exporters of intermediary services

• Contracts must identify the recipient and recipient location with precision
• Invoices must match the contract scope and recipient details
• Foreign currency receipt records must be maintained
• LUT or bond compliance must be in place where used
• Refund claims must track input tax credit with clean supporting records

For importers of intermediary services

• Vendor contracts must describe the service and recipient status
• RCM payment process must be mapped in accounting systems
• IGST payment under RCM must match return reporting
• Input tax credit claims must track eligibility and matching data

Why this change matters for policy and litigation

Section 13(8)(b) produced disputes because it treated many export-linked services as domestic supplies through a legal fiction. Budget 2026 removes that fiction for intermediary services and places them back under section 13(2), where the place of supply is the location of the recipient.

This reset reduces the incentive to litigate classification as “intermediary” for export denial, since the place-of-supply consequence changes. Disputes will remain on facts and export conditions, but the central anomaly that drove many challenges loses force.

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