GST Council Meet: Nasscom Seeks Clarity on Overseas Branches, R&D Service Exports

IT industry body Nasscom has raised the two issues with the government, arguing that the manner in which an Indian company structures its overseas operations should not determine whether services supplied from India qualify as exports.

Nasscom Vice President and Head of Public Policy Ashish Aggarwal said Indian service exporters frequently cater to overseas customers through foreign branches and that greater clarity on the issue would improve competitiveness, ease working-capital pressures and reduce prolonged litigation faced by the industry.

The industry body has also sought clarity on the GST treatment of R&D, engineering and testing services performed in India on prototypes or samples supplied by customers based overseas.

Aggarwal said such services are generally treated under the existing framework as being supplied in India because the work is physically carried out here, preventing them from qualifying as exports. He argued that since the overseas customer receives and uses the resulting service outside India, it should be treated as an export.

Nasscom said India has considerable potential in technology-enabled services, research and development and engineering, including work undertaken by global capability centres for their overseas parent organisations.

The industry body said greater clarity would become increasingly important as artificial intelligence and other emerging technologies expand the range of services delivered from India and could help prevent future tax disputes.

Nasscom has been engaging with the government on GST issues affecting services exports for several years. Aggarwal noted that clarifications issued by the GST Council in 2021 addressed the export status of services provided by global capability centres to overseas group entities.

The removal of the intermediary provision earlier this year also addressed a long-standing concern for IT-BPM companies, the industry body said.

However, the sector continues to seek clarity on GST treatment of transactions between international head offices and their overseas branches, an issue that has resulted in litigation involving Indian IT and IT-enabled services exporters.

According to Nasscom, the existing framework can create a disparity between services delivered through overseas branches and those provided through foreign subsidiaries. This may result in reversals of input tax credit and increase the compliance burden for exporters.

The GST Council Secretariat, in an office memorandum, said the Council would meet on October 8, following multiple changes to the schedule. The meeting was initially planned for September 12 before being postponed to October 7 due to the BRICS summit and subsequently rescheduled again.