1. Introduction
The GST Council, at its 57th meeting held on 8 October 2026, recommended a package of measures intended to facilitate the export of services from India. For enterprises that deliver services through overseas branches, the most consequential recommendation is the proposed removal of the restriction under which a supply between an Indian establishment and its own foreign branch could not qualify as an “export of services”. The Council has also recommended system-based processing of refunds and a wider eligibility for refund of accumulated input tax credit (“ITC”), both of which bear directly on working capital.
These measures are recommendations and not law. The Council has stated that they will take effect only through the relevant circulars, notifications and amendments to the statute, which alone will carry the force of law. The proposals nonetheless warrant the attention of the management of enterprises with overseas operations, since they bear on three matters of consequence: the release of blocked cash, the legal certainty of cross-border arrangements, and the structure through which overseas operations are conducted.
2. Recommendations of the GST Council
The Council’s recommendations relating to the export of services, and the associated refund measures, are as follows.
- Omit clause (v) of Section 2(6) of the IGST Act, which excludes supplies between establishments of a distinct person from export treatment, so as to facilitate refunds for Indian service providers supplying to or through their foreign offices and branches and to promote service exports.
- Issue a circular clarifying issues relating to receipt of payment in foreign exchange, or in Indian rupees where permitted by the RBI, for exports of goods and services.
- Omit clause (a) of Section 13(3) of the IGST Act, so that where goods are physically made available by the recipient to the supplier, the place of supply of services is determined under Section 13(2), that is, by the location of the recipient.
- Insert an explanation to Section 16(1) of the IGST Act, so that goods supplied to an overseas buyer and delivered in a Special Economic Zone (“SEZ”) or Free Trade Warehousing Zone (“FTWZ”) are deemed to be supplied to an SEZ or FTWZ, where payment is received in convertible foreign exchange or in Indian rupees where permitted by the RBI.
- Introduce system-based processing of refunds, with provisional sanction of 90% of refund claims relating to zero-rated supplies and inverted duty structure, subject to risk evaluation by the system, and reduce the time limit for an acknowledgement or deficiency memo from 15 days to 10 days.
- Widen the eligibility for refund of accumulated ITC: on capital goods for zero-rated supplies, and on input services and capital goods for inverted duty structure.
3. Comparative Overview of Key Recommendations
The principal recommendations may be summarised in the following comparative framework.
|
Area |
Position under the Existing Framework |
Position under the Council’s Recommendations |
|
Supplies between Establishments of a Distinct Person |
Clause (v) of Section 2(6) of the IGST Act disqualifies a supply from export treatment where the supplier and the recipient are merely establishments of a distinct person. |
Clause (v) is to be omitted, enabling Indian service providers supplying to or through their foreign offices and branches to seek export treatment and refunds. |
|
Place of Supply where Goods are made available by the Recipient |
Clause (a) of Section 13(3) applies a separate place-of-supply rule to such services. |
Clause (a) is to be omitted, so that the place of supply follows the location of the recipient under Section 13(2). |
|
Receipt of Payment |
Open issues remain on receipt of consideration in foreign exchange, or in Indian rupees where permitted by the Reserve Bank of India. |
A circular is to be issued clarifying these issues for exports of goods and services. |
|
Delivery of Goods to an Overseas Buyer in an SEZ or FTWZ |
Zero-rating of such supplies lacks certainty. |
An explanation to Section 16(1) is to deem the supply a supply to an SEZ or Free Trade Warehousing Zone, where payment is received in the permitted manner. |
|
Processing of Refunds |
Refund claims attract manual processing, with an acknowledgement or deficiency memo due within 15 days. |
System-based processing, with provisional sanction of 90% of claims relating to zero-rated supplies and inverted duty structure, subject to risk evaluation; the period for acknowledgement or deficiency memo is reduced to 10 days. |
|
Refund of Accumulated ITC |
Refund of accumulated ITC is confined to inputs and, for zero-rated supplies, excludes capital goods; in inverted duty cases, it excludes input services and capital goods. |
Refund of accumulated ITC on capital goods for zero-rated supplies, and on input services and capital goods for inverted duty structure. |
4. Analysis of the Export-Related Recommendations
4.1 Removal of the Distinct-Person Restriction
Under Section 2(6) of the IGST Act, a supply of services qualifies as an export only if prescribed conditions are met, including that the supplier is located in India, the recipient is located outside India, the place of supply is outside India, and payment is received in the permitted manner. Clause (v) adds a further condition: the supplier and the recipient must not be merely establishments of a distinct person.
The consequence has been that a service supplied by an Indian company to its own overseas branch could fail the export test, even where the transaction had a genuine cross-border character. Refunds were correspondingly unavailable and disputes were a recurring risk. The Council’s recommendation to omit clause (v) removes this specific disqualification and is intended to facilitate refunds for Indian service providers dealing with their foreign offices and branches.
The remaining conditions continue to apply. The omission therefore enlarges the class of eligible transactions but does not dispense with the need to satisfy the other elements of the definition.
4.2 Place of Supply where Goods are made available by the Recipient
The Council has also recommended omitting clause (a) of Section 13(3) of the IGST Act. Where goods are physically made available by the recipient to the supplier in order for the service to be provided, the place of supply will accordingly be determined under the default rule in Section 13(2), that is, by the location of the recipient. The Council expects this to facilitate access to export-related benefits for Indian service providers supplying such services to foreign recipients.
4.3 Receipt of Payment in Foreign Exchange or Indian Rupees
Receipt of consideration in convertible foreign exchange, or in Indian rupees where permitted by the Reserve Bank of India, is a condition of export treatment. The Council has recommended the issue of a circular to clarify issues relating to such receipt for exports of goods and services. For exporters, the practical significance lies in the alignment of contractual payment terms, banking records and the statutory condition.
4.4 Zero-rating of Goods Delivered in an SEZ or FTWZ
The Council has recommended inserting an explanation to Section 16(1) of the IGST Act for goods supplied to an overseas buyer where delivery is made in a Special Economic Zone or Free Trade Warehousing Zone. Where payment is received in convertible foreign exchange, or in Indian rupees where the Reserve Bank of India permits, the supply will be deemed to be a supply to an SEZ or FTWZ. The measure is intended to provide certainty on zero-rating for Indian manufacturers supplying goods to overseas buyers through such delivery.
5. Refund Reforms and Working Capital
5.1 System-Based Processing of Refunds
The Council has recommended system-based processing of refunds, including provisional sanction of 90% of refund claims relating to zero-rated supplies and inverted duty structure, subject to risk evaluation by the system. It has further recommended reducing the time limit for issuing an acknowledgement or deficiency memo from 15 days to 10 days.
5.2 Wider Eligibility for Refund of Accumulated ITC
The eligibility for refund of accumulated ITC is also to be widened. For zero-rated supplies, accumulated ITC on capital goods will be refundable. For inverted duty structure, accumulated ITC on input services and capital goods will be refundable. The Council has stated that these measures are intended to ease working-capital constraints and remove the blockage of ITC.
The benefit will depend on the final legal framework and on the taxpayer’s documentation and risk profile. Provisional sanction subject to system risk evaluation places a premium on accurate, reconciled and well-documented claims.
6. Status of the Recommendations
The recommendations do not alter the law as it presently stands. The final wording of the amendments, the effective date and any transitional treatment will determine which transactions qualify, and whether past or pending transactions are affected. Businesses should continue to apply the existing law until the amendments are notified and brought into force, and should not assume retrospective relief.
7. Implications for Enterprises
7.1 The immediate relevance is to cash flow. Provisional sanction of 90% of refund claims and the wider eligibility for accumulated ITC could convert blocked credit into working capital. Enterprises should quantify accumulated ITC, pending refund claims and GST paid on branch-related supplies, and model the potential release of cash. The benefit should not be recognised in forecasts or filings until the law is notified.
7.2 The reform reduces a long-standing source of uncertainty in cross-border service arrangements, but it does not eliminate legal risk. Contracts, service descriptions, invoices, inter-office arrangements, payment records and evidence of the place of supply will continue to determine whether a transaction qualifies. Enterprises should review these documents, distinguish supplies to overseas branches from those to separately incorporated foreign companies, and identify open disputes and refund claims that the final amendments may affect.
7.3 The recommendations signal a policy direction towards making India’s services exports easier to deliver and finance. This may bear on the choice between a branch, a subsidiary and direct contracting with overseas clients. Tax treatment is only one consideration, and regulatory, commercial and liability factors remain relevant. The prudent course is to prepare the comparison now so that the enterprise can act promptly once the law is settled, rather than restructure on the strength of a recommendation.
8. Our Reccomendation
- Map all services supplied to or through overseas branches and separate them from supplies to separately incorporated foreign entities.
- Review contracts, invoices, inter-office arrangements, payment records and place-of-supply evidence.
- Quantify accumulated ITC, pending refund claims and the working capital that may be released.
- Identify open disputes and pending proceedings that the final amendments may affect.
- Prepare a comparison of the branch, subsidiary and direct-contract models for consideration at the level of the board.
- Continue to apply the existing law until the amendments, circulars and notifications are in force.
8. Conclusion
The 57th GST Council recommendations are significant for Indian enterprises with cross-border service operations. The proposed omission of the distinct-person restriction, together with the proposed changes to the place-of-supply, payment and refund provisions, could make export treatment and refunds more accessible for services supplied to or through overseas branches. The reforms are, however, not yet operative. Enterprises that map their branch transactions, strengthen their documentation and quantify the cash at stake will be best placed to benefit, while continuing to follow the law as it stands until the amendments, notifications and circulars are issued.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
