GST - Export of Sevices - Outsourcing of services

A welcome clarification from the Government on Outsourcing of services for export of services vide Circular No.78/52/2018-GST dated 31.12.2018.

Synopsis of this clarification

Exporter of Services located in India when outsourcing part of their work to service provider in another country for servicing its client, then if

• RBI approves for retention of partial consideration outside India and
• If IGST is paid on reverse charge mechanism

then, exporter of services in India can claim credit of IGST paid and also take full export benefit on full export value (including outsourced portion).

Example

ABC India gets a contract for export of services to Client in USA for $ 500,000.   ABC India outsources some of the services to XYZ in Mexico (say 40%).  Now, there are 2 options

Option 1

ABC bills full $ 500,000 to Client in USA.  In this scenario, XYZ Mexico bills $ 200,000 to  ABC India and ABC India pays this to XYZ Mexico.  On this $ 200,000 payment ABC India has to pay IGST on reverse charge considering this payment to XYZ Mexico as import of services.  The IGST paid by ABC India can be availed as credit by ABC India when they bill $ 500,000 to the Client in USA and also can claim the entire $ 500,000 as export benefit

Option 2

ABC bills its value of services of $ 300,000 to Client in USA, XYZ Mexico bills to Client in USA its value of services $ 200,000 and both receive their respective payments from Client in USA.  First, ABC India need to take approval from RBI for retaining part consideration outside India, and second, pay on the $ 200,000 billing of XYZ Mexico IGST on reverse charge considering this payment to XYZ Mexico as an import of services.  The IGST paid by ABC India can be availed as credit by ABC India when they bill $ 300,000.  If RBI approval is obtained and IGST paid on reverse charge the entire contract value of $ 500,000 can be considered as an export benefit by ABC India