GST Council meet: Tech industry seeks clarity on overseas branch, R&D exports

New Delhi: Ahead of the upcoming 57th GST Council meeting -- that was rescheduled for Thursday -- IT industry body Nasscom has flagged two issues concerning the treatment of services exports that are supplied through overseas branches and R&D, engineering and testing work carried out in India on prototypes provided by overseas customers.

Nasscom Vice President and Head of Public Policy Ashish Aggarwal said the way a company organises its overseas presence should not determine whether a service supplied from India qualifies as an export.

Indian service exporters often serve overseas customers through branches abroad, he added.

"Clarity on this would support competitiveness, release working capital and reduce the litigation the industry has faced over the years," Aggarwal said.

Nasscom also flagged the GST treatment of R&D, engineering and testing services carried out in India on prototypes or samples provided by overseas customers.

Under the current rules, such services are generally treated as being supplied in India, where the work is performed, and do not qualify as exports, Aggarwal said.

He said the overseas customer receives and uses the results abroad and the service should therefore qualify as an export.

India has significant potential in technology-enabled services, R&D and engineering, including work carried out by global capability centres for their overseas organisations, Nasscom said.

"As AI and other technologies widen the range of services delivered from India, clarity on this point now would help prevent future disputes," Aggarwal said.

Moreover, the industry body has been working with the government on GST treatment of services exports for several years.

Aggarwal said the Council's 2021 clarifications settled the export status of services provided by global capability centres to their overseas group companies.

While the removal of the intermediary provision this year addressed a long-standing issue for IT-BPM companies.

In addition, the tech industry has also been seeking greater clarity on the GST treatment of international head office-branch office transactions, which has been a source of litigation for Indian IT-ITES exporters.

According to the industry body, the current framework creates a disparity between exports delivered through overseas branches and those routed through subsidiaries. This can lead to input tax credit reversals and add to the compliance burden for exporters.

In an office memorandum, the GST Council Secretariat said that the meeting is scheduled to meet on October 8 which highlights that the date was revised a second time.

However, the meeting was originally scheduled for September 12 but then postponed to October 7 due to the BRICS summit.

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