Taxability of service provided to foreign client of principal located in India

Pradeep Jain | Last updated: 17 January 2021

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This article discusses the taxability of services provided to foreign clients when the principal company is located in India. It examines a specific case where an applicant provided IT consulting services to a US client through an Indian IT company. Although the fees were agreed in US dollars, payment was made in Indian Rupees by the Indian principal. The Advance Authority Ruling (AAR) determined that this transaction was a supply of services to the Indian IT company, not an export of services, because there was no direct agreement with the foreign client and the Indian company was ultimately liable for payment.

The determination of transaction as export of service is required satisfaction of all the conditions prescribed in section 2(6) of the IGST Act, 2017. However, at times, there is a situation where the activity is not considered as export as the consideration is not received in convertible foreign ex

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FAQ :

For a transaction to be considered an export of service, all conditions prescribed in section 2(6) of the IGST Act, 2017, must be satisfied.

No, a transaction may not be considered an export if the consideration is not received in convertible foreign exchange, particularly when the principal is located in India.

The Advance Authority Ruling (AAR) held that the Indian IT company was the recipient of the services, not the foreign client, as there was no direct agreement between the applicant and the foreign client, and the Indian company was ultimately liable for payment.

No, the transaction cannot be treated as an export of service merely because the ultimate beneficiary of the service is situated abroad. The conditions for export of service must be met, including the recipient being located outside India.

The AAR held that the services provided by the applicant to the Indian IT company were a supply of services under the CGST/SGST act, making the applicant liable to pay the relevant tax on such supply.