The GST Council may consider amending the Integrated Goods and Services Tax (IGST) Act at its next meeting to treat certain services provided by global capability centres (GCCs) to overseas entities as exports, removing the 18 percent GST currently levied on them, government sources said.

Section 13(3)(a) of the IGST Act currently stops many GCCs from claiming export status for services performed on goods located in India, even when payment comes in foreign exchange. The next GST Council meeting is likely to be held on October 7.

“GCCs are not exporting goods. They are essentially exporting a service. But today’s rule under Section 13 of the GST Act says that if you provide a service on goods that have been made available to you in the country, the place of supply becomes India. So even if you have received the money in foreign exchange, it doesn’t become an export, and you end up paying GST on it,” a senior government official told Moneycontrol.

The proposed change is likely to be discussed by the GST Council in its upcoming meeting, according to the official.

“Whatever input tax credit has gone into providing that service will be eligible for refund, and the service provider will not have to pay GST on the outward supply. At present, the GST is adding 18 percent to the cost of that service, and that will be removed,” the official said.

The change would require an amendment to the IGST Act, the official said.

The existing place-of-supply provision is the reason GST becomes payable despite receipt of foreign exchange, the person said. The change could be particularly relevant for GCCs undertaking engineering, product development, testing, research and development and semiconductor-related work for overseas group entities.

Today, several GCCs undertake high-value activities such as semiconductor and system-on-chip (SoC) design, product testing and validation, engineering services, remote technical support, research and development, and development-build activities for overseas group entities.

Source: Moneycontrol.com