A huge relief for the nation’s $180 billion industry of BPO (Business Process Outsourcing) and IT Companies. The GST Council on Friday released a clarification that will open up hundreds of crores in tax refunds for IT, financial services, and research and development sector firms, and eliminate the four-year-old problem that has led to large-scale disputes. This article discusses the latest clarification by the taxation department for GST on BPO & Call Center Services in detail.
Move to Reduce GST Disputes on BPOs
The measure is part of the Government’s GST dispute reduction agenda. In conflicts concerning the definition of ‘intermediate’ services, more than 200 BPO and call center firms are engaged. Now, the GST Council excludes the BPOs and Call center providing services to foreign entities from the definition of Intermediary Services. Let’s understand how the BPO industry gets relief by exclusion from the intermediary definition.
What are Intermediary Services under GST?
As per Section 2(13) of the Integrated Goods & Service Tax, 2017 (IGST Act), intermediary means a broker, an agent, or any other person, by whatever name called, who arranges or facilitates the supply of goods/services or both, between two or more persons.
However, ‘intermediary’ does not include a person who provides the service on his own account (i.e. principal to principal basis).
In other words, Intermediary services are those services that are supplied by an agent, such as a real estate agent or a stock broker. Similarly, Back office services, accounting, and legal support, and other services are given by Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) businesses that fall under the intermediary definition.
| Transaction Type | Intermediary |
| supply between the principal and the third party | Yes |
| supply of his own service to his principal, for which a fee or commission is usually charged | No |
Previous Ruling on GST liability, GST Registration, and GST Return Filing for BPO & Call Center Services
Previously, The Maharashtra Advance Ruling Authority (AAR) held that BPO and Call Center Services are not qualified for export, but are in a manner that provides or facilitates the supply of goods or services between overseas companies and customers, as is the case with Vserv Global (Pvt.) Ltd. (2018-TIOL-263-AAR-GST).
Thus, these services were classified as intermediary services, and it was mandatory for BPO and Call Center Companies to have GST Registration, pay GST @ 18%, and do GST Return Filing.
No GST on BPO & Call Center Services
- As per the latest circular by CBIC, BPO services will not be regarded as intermediate in nature as long as it provides the service on its own accounts.
- Similarly, It states that In view of the definition of “intermediary” under GST law, an ITES business that supplies backend services will not be classified as an intermediary if the services were delivered on its own account.
- However, the circular adds a seller of back-end support services for instance order placing, delivery and logistical assistance, getting governmental permissions, products transportation, post-sales support, and so on will be deemed an intermediary. Thus, businesses providing these services will need to have GST Registration, pay GST liability, and do GST Return Filing.
- Lastly, as per the circular, If a firm offers back-end services on its own account while also organizing or enabling the provision of various support services on behalf of a customer situated overseas, it is providing two types of services that are ITeS services and support services. In such situations, whether the supplier falls under the category of intermediary or not will be determined by the facts of each case.
Impact of No GST on BPO & Call Center Services
Over 350,000 individuals are employed in India’s more than 500 in-house delivery centers. An 18 percent tax on these services disrupts the cost dynamics significantly of the back-office business.
After exclusion from the definition of intermediary, BPO & call center providing to overseas entities get the export status and can do GST billing on Zero rates as exporter. Hence no need to pay GST.
This move also freed up the crores of rupees GST Tax Refunds who paid GST on BPO Services supplied to foreign entities.
Moreover, The industry works on razor-thin margins and has to compete with other low-cost countries like the Philippines. The implementation of No GST on BPO & Call Center Services, it will provide a major relaxation in business operations to companies providing these services.
If you want any other guidance relating to the GST Registration, please feel free to talk to our business advisors at 8881-069-069.
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