Budget 2026 Overhauls Cross Border GST: Intermediary Rules Scrapped, Export Refunds Fast‑Tracked

1. Introduction: A Turning Point for India’s Cross‑Border Services

With the proposal to omit Section 13(8)(b) of the IGST Act, 2017, Budget 2026 fundamentally reshapes GST treatment of cross‑border services. For years, Indian consulting, marketing, sourcing and back‑office centres serving overseas clients struggled with the “intermediary” tag, which artificially treated many exports as domestic supplies, blocking access to zero‑rating and refunds.

The Finance Bill 2026 now proposes to dismantle this deeming fiction and restore the core GST principle of destination‑based taxation. Once implemented, many principal‑to‑principal service mandates executed from India for foreign clients can qualify as exports of services, unlocking standard refund channels and improving India’s competitiveness as a global services hub.

At the same time, the Budget refines the GST refund framework by:

  • Extending provisional refund benefits to inverted duty structure cases, and
  • Removing the ₹1,000 minimum threshold for refund of IGST on export of goods.

Together, these measures aim to ease working capital pressure, reduce disputes, and align Indian practice with global VAT norms.

2. Impact of Omitting Section 13(8)(b) on Intermediary Services

2.1 The Earlier Position: Deemed Domestic Supply

Prior to the proposed amendment, Section 13(8)(b) of the IGST Act created a special place‑of‑supply rule for “intermediary services”. Even where the recipient of such services was located outside India, the law deemed the place of supply to be the location of the supplier in India.

This had two major consequences:

  • Many cross‑border facilitation, marketing and support services performed from India were treated as supplies within India and not as exports.
  • As a result, such services did not qualify as zero‑rated supplies under Section 16 of the IGST Act, restricting refund eligibility of input tax credit (ITC) and of IGST paid.

2.2 The New Framework: Default Rule in Section 13(2) Restored

The Finance Bill 2026 proposes to omit clause (b) of sub‑section (8) of section 13 of the IGST Act. Once this change takes effect:

  • There will no longer be a special rule that deems the place of supply of intermediary services to be the supplier’s location.
  • Place of supply for such cross‑border services will be determined under the general rule in Section 13(2) – namely, the location of the recipient of services.

Key Implication
Where the service recipient is outside India, and other export conditions are met, such supplies can now qualify as export of services and become zero‑rated.

2.3 Conditions for Treating a Supply as Export of Services

Under Section 2(6) of the IGST Act, a service counts as “export of services” only if all of the following conditions are satisfied:

  1. Supplier located in India
  2. Recipient located outside India
  3. Place of supply outside India
  4. Consideration received in:
    • Convertible foreign exchange, or
    • INR, where RBI specifically permits
  5. Supplier and recipient are not merely establishments of the same person

Post‑omission of Section 13(8)(b), if the recipient is outside India and the place of supply shifts outside India via Section 13(2), these services can meet condition (3) above, subject to facts.

Once the supply qualifies as export of services, it is zero‑rated under Section 16 of the IGST Act, opening two well‑known routes:

  • Export under LUT/Bond without payment of IGST and claim refund of accumulated ITC, or
  • Export with payment of IGST and claim refund of IGST so paid.

This is a fundamental shift for sectors like marketing support, business process outsourcing, sourcing support, backend operations and certain consultancy assignments executed for foreign clients.

3. Re‑characterising Exports and Imports of Services

3.1 Outbound Services: Higher Scope for Export Status

With the removal of Section 13(8)(b), the following categories of services, when provided from India to overseas entities on a principal‑to‑principal basis, may now be eligible for export classification, subject to satisfaction of conditions under Section 2(6):

  • International marketing and brand promotion mandates
  • Business development support for foreign principals
  • Backend processing services for foreign customers
  • Liaison and facilitation services where the Indian entity acts on its own account

Provided that:

  • The foreign client is the contractual recipient,
  • Payment is received in eligible foreign currency or permitted INR, and
  • The arrangement does not reflect “merely establishments of the same person”.