This circular provides clarification on the tax treatment of export of services where an Indian exporter outsources a part of the service contract to a service provider located outside India.

It is clarified that in such cases, two separate supplies are involved. First, the Indian supplier provides services to a recipient located outside India for the full contract value, which may qualify as export of services if all conditions under section 2(6) of the IGST Act are satisfied. Second, the outsourced portion of services provided by the overseas supplier constitutes an import of services by the Indian exporter.

The Indian exporter is liable to pay IGST on the imported services under the reverse charge mechanism and is eligible to avail input tax credit of the tax so paid. The entire contract value agreed between the Indian exporter and the foreign recipient will be treated as export of services, even if a portion of the services is performed outside India through an overseas supplier.

It is further clarified that export benefits will not be denied merely because part of the consideration is paid directly by the foreign recipient to the overseas service provider and not received in India, provided IGST is paid on the imported services under reverse charge and the Reserve Bank of India permits retention of such portion of consideration outside India.

Accordingly, where these conditions are fulfilled, the full contract value shall qualify as consideration for export of services under GST.