Budget 2026 Amendment on Intermediary Services: Where Do We Stand Now?

What is an Intermediary under GST?

The concept of ‘intermediary’ in GST is not something new or unconventional. It has been borrowed into the GST Regime from the erstwhile Service Tax Regime. The only difference being that the definition of intermediary is now expanded to include the scope of securities along with goods and services.

An intermediary is defined in Sub-section 13 of Section 2 of the Central Goods and Services Tax Act 2017 (CGST Act’) as below:

“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 means for an entity or person to qualify as an intermediary; the following conditions need to be satisfied.

• Person arranges or facilitates goods/ services/ securities
• Minimum three people are involved in the supply i.e. The person on whose behalf the goods are being supplied (principal), the agent/ broker facilitating the supply (intermediary) and the customer.
• There are two types of supplies involved: a principal supply (usually supply of goods/services/ securities in question) and an ancillary supply (agency or facilitation supply)
• It should be noted that there is no supply of such goods/ services/ securities on its own account i.e. supplies on principal-to-principal basis are not under purview of intermediary

Let us try to understand this with help of an illustration

HC is a holding company located outside India that supplies products to customers in India. SC is its wholly owned subsidiary located in India.

HC engages SC to provide marketing and sales support services for the Indian market on a commission basis. SC’s role is limited to identifying customers, promoting HC’s products, and facilitating interactions and negotiations between HC and customers in India. SC does not independently undertake substantive marketing functions or assume any sales risk. In this arrangement, SC merely facilitates the supply of goods between HC and customers in India and earns a commission linked to sales concluded by HC. Accordingly, SC acts as an intermediary.

Once the condition of being an intermediary is satisfied, the place of supply provisions need to be referred to understand where a service is taxed.

Place of supply of intermediary services under GST

In the previous example, if SC qualified as an intermediary before the proposed amendment, the place of supply of services would have been India, and GST would be applicable on such supply of services. The GST so charged would be a cost to HC as they would not be eligible to claim any input-tax credit of Indian GST charged to them.

However, post the proposed amendment, the place of supply of intermediary services will be the place of recipient i.e. outside India, and such services would qualify as zero-rated supplies subject to other prescribed conditions.

What are the implications of this amendment?

The concept of Intermediary services has always been a bone of contention between the assesses and the tax authorities, particularly in GST where it has been one of the most litigated topics for nearly nine years with disputes amounting to over INR 30 Billion. The amendment finally brings much‑awaited clarity and relief for taxpayers.

Impact on service exporters

Earlier, GST was payable on intermediary services since the place of supply was deemed to be in India, regardless of the location of the service recipient. This approach ran contrary to the destination-based principle of GST and resulted in denial of export benefits to businesses. Moreover, the GST charged by the Indian service provider would become a clear cost to the service recipient outside India.

With the amendment, the place of supply shifts from the location of the supplier to the location of the recipient. Consequently, where the recipient is located outside India, such services would qualify as zero-rated supplies, on which GST is not payable under a Bond or Letter of Undertaking, subject to fulfilment of prescribed conditions.

Industries such as IT, consulting, BPO, technology support services will be able to claim the status of exporter, thereby boosting exports outside India.

Impact on service importers

While the amendment is beneficial for exporters, it will also have implications for importers of services.

Post amendment, services received by an Indian recipient from an overseas intermediary service provider will be liable to GST under the reverse charge mechanism. Although the tax so paid would generally be eligible for input tax credit, importers will be required to undertake additional compliances, including discharge of tax, reporting, and documentation obligations.

What is awaited?

At present, it remains unclear whether the amendment will have any bearing on past or ongoing litigation, unless the law expressly provides for retrospective application or relief is granted under section 11A of the CGST Act on an “as is, where is” basis.

In light of this uncertainty, businesses should realign their practices going forward and evaluate any potential historical exposure.

Next Steps?

For businesses engaged in providing intermediary services, the impact of the amendment needs to be assessed closely. In this regard, businesses should:

• Review existing tax positions and tax exposure.
• Structure inter-company contracts terms and transactions.
• Align invoicing, pricing, and tax clauses.
• Prepare for filing GST refund applications, wherever applicable.

The proposed amendment aligns India’s GST framework with international practices governing intermediary services. With this change, businesses can now confidently consider agency-based operating models, which were earlier commercially unattractive under the erstwhile regulation.

Our teams at Roedl India, can provide end-to-end support in evaluating the impact of the amended intermediary provisions on existing and proposed arrangements. This includes assistance with operating model restructuring, documentation, implementation, and GST refund support, to ensure continued compliance and effective risk mitigation.