Intermediary Services Under GST: The Finance Act 2026 Revolution in Place of Supply Rules
Overview: A Decade-Long Dispute Reaches Legislative Closure
For nearly a decade, Indian businesses facilitating cross-border transactions found themselves trapped in a legal contradiction — one that cost them dearly in terms of competitiveness and cash flow. The treatment of intermediary services under Indian indirect tax law has been a persistent flashpoint, beginning under the Service Tax era and carrying forward into the GST framework with even greater commercial consequences.
The root of the problem was Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), which fixed the place of supply of intermediary services at the location of the supplier — irrespective of where the recipient was situated or whether payment was received in foreign exchange. The inevitable result was that Indian agents, brokers, and facilitators servicing overseas clients were denied export benefits and instead saddled with an 18% IGST burden, rendering them structurally uncompetitive in global markets.
The Finance Act, 2026, which received Presidential assent on March 30, 2026, has now surgically removed this provision. Section 13(8)(b) of the IGST Act stands omitted with effect from March 30, 2026, and the place of supply of intermediary services is now governed by the general default rule under Section 13(2) — i.e., the location of the service recipient.
This single legislative change reshapes the entire compliance landscape for Indian intermediaries engaged in outbound services as well as Indian businesses receiving inbound intermediary services from foreign suppliers.
Part 1: Legal Framework and Statutory Background
The Origin of the Problem
The concept of an "intermediary" in Indian indirect taxation made its debut under Rule 9(c) of the Place of Provision of Service Rules, 2012, under the erstwhile Service Tax framework. When GST was introduced in July 2017, both the definition of the term and the disputed place of supply rule were seamlessly carried forward into the IGST Act — and the litigation that followed was inevitable.
Statutory Definition of Intermediary
The definition of "intermediary" is enshrined in Section 2(13) of the IGST Act, 2017 and reads as follows:
"Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account."
It is critical to note that the Finance Act, 2026 does not alter this definition. The amendment is limited exclusively to the place of supply provision. Assessees must therefore independently verify whether their arrangement qualifies as an "intermediary" arrangement before claiming zero-rating benefits.
The Structural Anomaly Under the Old Law
Under the pre-amendment regime, Section 13(8)(b) of the IGST Act mandated that the place of supply of intermediary services would always be the location of the supplier. Since most Indian intermediary service providers are located in India, the place of supply was always India — regardless of the fact that the recipient was a foreign entity and payment was received in convertible foreign exchange.
This meant:
- 18% IGST was compulsorily payable on all such supplies
- The services could not qualify as exports under
Section 2(6)of the IGST Act - No zero-rating benefit was available, and no refund could be claimed
- Indian intermediaries were placed at a significant disadvantage compared to their foreign counterparts
Part 2: The Finance Act 2026 Amendment — Before and After
What Has Changed
| Parameter | Pre-Amendment Position | Post-Amendment Position |
|---|---|---|
| Governing Provision | Section 13(8)(b), IGST Act |
Section 13(2), IGST Act |
| Place of Supply | Location of the Supplier (India) | Location of the Service Recipient |
| When Recipient is Overseas | IGST @ 18% mandatory | Qualifies as zero-rated / export of services |
| Refund Availability | Not available | Available under LUT or IGST refund route |
| Effective Date | Pre-March 30, 2026 | March 30, 2026 onwards |
No Saving Clause — A Significant Development
Section 13(8)(b) has been omitted without any saving clause. This has far-reaching implications for pending disputes:
Important: The unconditional nature of the omission gives rise to a strong legal argument that all outstanding demands and denied refunds relating to intermediary services should be vacated consequentially. However, tax authorities are likely to resist this position, and disputes covering past periods are expected to continue. Assessees are advised to evaluate their specific litigation posture carefully.