GST on Services | Invoicing services outside India

Exports of services attract zero rate GST, but in which cases are these services actually exported? Read along to understand more about invoicing services outside of India.

We have already discussed the concept of place of supply and its importance in GST, as it determines what type of tax you pay. Naturally, exports outside of India, including the export of services, have also fallen under the regulations of GST. The good news is, exports of services are taxed at zero rate.

GST on export of services

In order to ensure that proper regulations are in place, the Advance ruling Authority of West Bengal has given a recent decision regarding which services provided outside of India are exports and which are not.

Specifically, an export of service means supply of services when:

  • The supplier of said services is located in India;

  • The recipient of said services is located outside of India;

  • The place of supply of service is outside of India;

  • The payment is received by the supplier of said services in convertible foreign currency (other than INR);

  • The recipient of said services is not a branch office or an agency, or a representational office of the supplier of said services.

In simpler words, the place of supply of the exported services means the location of the receiver of said services. However, with the new decision from the AAR, for a service to be considered an export, the above points need to be met.

In short, if the service is supplied as an intermediary service, the place of supply is the place of the intermediary, which is in India.

An intermediary can be a broker, an agent or any person that arranges the supply of services between two or more people. The activity of such an intermediary is not done for their own person / company but for another person.

If it is determined that the services are provided by the intermediary, then the place of supply will be that of the intermediary. As such, if a person / business provides services to recipients outside of India and acts as an intermediary (a middleman), this service does not qualify as an export and will attract GST.

To ensure you are respecting the GST laws and avoiding unnecessary headaches, the initial arrangement made between two parties should be reviewed to be clear if GST should be charged or not.

GST Explained

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

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With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

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Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

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Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

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The GST will follow a similar model with the one before it

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GST will have a 4-tier tax structure

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One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

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For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

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Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

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A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.

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