India’s booming Global Capability Centre (GCC) ecosystem and Indian subsidiaries of multinational corporations (MNCs) have come under heightened scrutiny from Goods and Services Tax (GST) authorities.

Sources have told CNBC-TV18 that “tax officials at both state and central levels, along with the Directorate General of GST Intelligence (DGGI), have launched an extensive investigation into the export status of services offered by these firms.”

“Summons and notices have reportedly been sent to several companies operating in key business hubs such as Bengaluru, Haryana, Maharashtra, Pune, Chennai, and the National Capital Region (NCR),” sources added.

Authorities are probing “whether services provided to overseas clients — including backend technology, content development, marketing, design, and R&D — qualify as exports or fall under the taxable category of ‘intermediary services’,” sources added.

Export or Intermediary? The Heart of the Dispute

At the core of the issue lies the interpretation of the term “intermediary” under the GST law. Under existing rules, services exported from India are considered zero-rated, meaning they are exempt from GST and eligible for input tax credit (ITC) refunds — a key benefit that makes Indian services competitive globally.

However, services classified as “intermediary” — where the provider facilitates a transaction between two other parties — are not considered exports and are taxable in India. Tax officials are currently examining business models, client contracts, and invoicing structures to determine whether companies are operating on their own account or merely facilitating services, which would make them intermediaries.

Industry Pushback

Companies under the scanner argue that they are offering services independently to foreign clients and are not intermediaries. Many of these firms are Indian delivery arms of global parent companies, providing critical IT, R&D, and digital services that, they argue, should clearly qualify as exports.

Impact and Economic at Stake

India is currently home to over 1,700 GCCs, employing 1.9 million professionals, and generating $64.6 billion in revenue as of 2024. The sector is expected to expand to 2,400 GCCs, employing over 2.8 million and generating $105 billion in revenue by 2030. Industry experts warn that prolonged uncertainty over GST applicability could impact investor sentiment and India’s global positioning in the services sector.

What Next?

Amid growing backlash, the government is reportedly considering amending GST laws to explicitly recognise certain intermediary services as exports, thereby exempting them from GST. This step could help resolve the long-standing ambiguity that has led to repeated litigation and compliance challenges for export-facing service providers.

This isn’t the first time this issue has come under the spotlight. A clarificatory circular issued in 2021 sought to bring clarity to the definition of “intermediary,” but the dispute continues to simmer — now reignited by fresh rounds of tax scrutiny.

Source: CNBC TV-18