GST Sword Hanging Over India’s IT-BPO Industry? Services Now ‘Intermediaries’, May Face Upto 18 Per Cent As Tax

According to the latest ruling of the Authority of Advance Ruling (AAR), ‘back offices’ of multinational companies in India will have to pay 18 per cent GST (Good and Services Tax) on their services, as reported by Economic Times (ET). The ruling also imposed the 18 per cent tax burden on Indian companies that provide offshore support services to multinational companies spread across the world.

Earlier many of these companies were treated as exporters of services and hence, were exempt from taxes in a bid to increase India’s exports. It should be noted that though India runs a massive trade deficit (goods) with other countries, it has a surplus in the services category. A large portion of this has been contributed by these ‘back offices.’

The AAR is an adjudicatory body that decides on tax liabilities of a non-residents and also specified categories of residents. It consists of a Chairman, who is a retired Judge of the Supreme court and two members of the rank of Additional Secretary to the Government of India.

“This ruling could open the Pandora’s box for various India setups that are assisting foreign companies with back office support functions such as accounting and legal. As these services do not qualify as exports, 18 per cent costs on these services could make them non-competitive,” commented Abhishek Jain, Tax Partner, EY India.

According to NASSCOM (National Association of Software and Services Companies), India’s IT-BPO industry will account for 10 per cent of the country's GDP, almost a fifth of its exports and 30 million jobs (both direct and indirect) by 2020.

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