Budget 2026 Eliminates Section 13(8)(b) of IGST Act: A Paradigm Shift in Taxing Intermediary Services

The Finance Bill 2026 has introduced a groundbreaking change in the GST landscape by proposing the removal of clause (b) from sub-section (8) of Section 13 of the IGST Act, 2017. This particular clause has historically determined the place of supply for intermediary services and has been a subject of considerable debate among tax professionals and businesses engaged in cross-border transactions. The elimination of this clause represents a watershed moment in India's indirect taxation system, aligning domestic law with internationally accepted principles and providing substantial relief to service exporters.

Section 13(8)(b) of IGST Act 2017 – The Present Law

The existing statutory provision under Section 13(8) of the IGST Act, 2017 reads as follows:

The place of supply of the following services shall be the location of the supplier of services, namely:-

(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;

(b) intermediary services;

(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month.

The current legislative framework under Section 13(8)(b) establishes a unique rule wherein:

The place of supply for intermediary services is deemed to be at the location where the service provider is situated, regardless of the geographical location of the service recipient.

This seemingly straightforward provision has resulted in complex and often unfavorable tax consequences that diverge from the standard treatment of cross-border service transactions.

Dual Impact of the Existing Provision

The application of Section 13(8)(b) in its current form has created two distinct scenarios with significant tax implications:

(A) Export Transactions Face GST Burden Despite Meeting Export Criteria

When intermediary services are rendered under the following circumstances:

  • The service provider operates from India
  • The service recipient is located in a foreign jurisdiction
  • The transaction consideration is received in convertible foreign exchange

Under normal circumstances, such a transaction would qualify as an export of services. However, due to Section 13(8)(b), the place of supply remains India, which leads to:

  • Imposition of GST on what should ideally be an export transaction
  • Denial of zero-rating benefits typically available to service exports
  • Competitive disadvantage for Indian intermediary service providers in global markets

(B) Import Transactions Escape Reverse Charge Mechanism

Conversely, when intermediary services flow into India:

  • The service provider is located outside India
  • The service recipient is situated in India

The place of supply is deemed to be outside India (where the supplier is located), resulting in:

  • No applicability of reverse charge mechanism under GST
  • Creation of a tax arbitrage opportunity
  • Inconsistency with the principle that services consumed in India should bear Indian tax

The Proposed Structural Change in Budget 2026

Complete Deletion of Section 13(8)(b)

The Finance Bill 2026 proposes the total elimination of clause (b) from Section 13(8) of the IGST Act, 2017.

Following this deletion, the taxation of intermediary services will no longer be governed by a special rule but will instead fall under the general provisions applicable to cross-border service transactions.

Applicability of Section 13(2) – The New Governing Provision

Once Section 13(8)(b) is deleted, the determination of place of supply for intermediary services will be governed by Section 13(2) of the IGST Act, 2017, which provides: