GST treatment on export of services partly rendered by third parties outside India


As per the industry practices for the export of services, it is possible that part of the export of services partly rendered by third parties outside India in order to execute and fulfill contractual obligations.

In such case where export of services partly rendered by third parties outside India, the payment of consideration for the outsourced part may be undertaken outside India in two ways:

  1. Payment by the service recipient directly to the foreign vendor
  2. Payment by the Indian exporter from export proceeds retained outside India

In situations like export of services partly rendered by third parties outside India , the tax treatment under GST assumes importance in order to avail the benefit of zero-rated export transactions and fulfillment of conditions contained in the Bond/ Letter of Undertaking submitted to the jurisdictional GST officer for undertaking exports without payment of Integrated Goods and Services Tax (‘IGST’)

In this regard, the Central Board of Indirect Taxes and Customs (‘CBIC’) has issued a Circular No. 78/52/2018-GST dated 31 December 2018 providing certain clarifications in relation to export of services and outsourcing of part works by Indian exporters and their treatment under GST.

The gist of the Circular regarding export of services partly rendered by third parties outside India is given below for ease of reference:

1. Representations made to CBIC

Representations have been received by CBIC seeking clarifications on the tax treatment of the following situation:

  1. Exporter of services is located in India and is supplying certain services to a service recipient located outside India.
  2. The exporter may be rendering services either wholly or partly through any other service provider located outside India.
  3. Full consideration towards export of services may not be received in India due to the following reasons:
    • Part payment made directly by the service recipient to the foreign outsourced party
    • Part payment retained overseas in accordance with the guidelines of the Reserve Bank of India



2. Clarifications provided by CBIC

The CBIC has clarified the following:

There are two services transactions taking place:

2.1 Export of services by the exporter to service recipient outside India for the full contract value

2.2 Import of services by the exporter from service provider (foreign outsourced contractor) located outside India with respect to the outsourced portion of the contract.

The value of exports would be considered at the contract value between the Indian exporter and the service recipient outside India if the conditions laid down in section 2(6) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”) read with section 13(2) of the IGST Act are satisfied.

The value of import of services by the exporter would be subject to payment of IGST under reverse charge mechanism (‘RCM)’on the value of outsourced portion of the contract. The IGST so paid under RCM would be eligible for taking Input Tax Credit (‘ITC’).

Even if the full consideration for services as per the contract value is not received in convertible foreign exchange in India due to the fact that the recipient of services located outside India has directly paid to the supplier of services located outside India (for the outsourced part of the services), that portion of the consideration shall also be treated as receipt of consideration for export of services in terms of section 2(6)(iv) of the IGST Act, if:

  • IGST under RCM has been paid by the Indian exporter for import of services on the foreign outsourced contract value; and
  • RBI by general instruction or by specific approval has permitted to retain part consideration for exports outside India.

This is indeed a welcome clarification by the CBIC and is in line with promotion of India’s exports globally and making them more competitive. By issuing this clarification, the CBIC has taken the right step to align the provisions of GST with FEMA.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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