Levy of Taxes on export of services

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This discussion clarifies the tax treatment for an Indian company providing professional services to a US client, paid in USD. The key question is whether to transact under a Letter of Undertaking (LUT) without paying taxes or to charge IGST. Based on the definition of 'Export of Services' under IGST law, where the supplier is in India, the recipient is outside India, and payment is in foreign exchange, it qualifies as an export. Crucially, if the Place of Supply is outside India (as is generally the case when the recipient is outside India and services are provided remotely), then LUT is the appropriate method, meaning no IGST is charged. The suggestion to charge IGST because the Place of Supply is India is incorrect if the recipient is located outside India.

shivangi

shivangi (Querist)
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13 June 2023 An India Company provides professional services to USA based co. in USD, the POS is in India (Remotely) no physical Establishment in India of the recipient.

how should it be transacted-
1) Export of Services under LUT without payment of taxes - in the absence of registered establishment of recipient in India.
or
2) Export of Services - under IGST in USD.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 June 2023 Export of Services under LUT without payment of taxes .

shivangi

shivangi (Querist)
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13 June 2023
Thank you Sir.. some one suggested to Charge IGST according to Section 2(5) of IGST, export of goods..
can you please confirm on the said?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 June 2023 Under LUT no IGST charging required.
Without LUT IGST charge required.

Message likes : 1 times

shivangi

shivangi (Querist)
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13 June 2023 Section 2(6): Export of Services
“Export of Services” means the supply of any service when,-
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8. [Refer Note 1(a)]

here the US based company does not have its registered place of business, services are provided remotely, which does not qualify the 3rd point as place of supply as per the aforesaid section

please clarify
the client is saying - they were suggested to charge IGST (in USD) as the POS is India but does not have the registered office in India

shivangi

shivangi (Querist)
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13 June 2023 Sir.. can you please revert to my message

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 June 2023 Service recipient is outside India, so the place of supply is outside India.
See place of supply provisions of GST.

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