Intermediary Services Under GST

What Is Intermediary Services Under GST?

An "intermediary" under India's Goods and Services Tax (GST) law is a broker, agent, or any other person who arranges or facilitates a supply of goods, services, or securities between two other parties, without supplying that main service on their own account. The term is defined in section 2(13) of the Integrated Goods and Services Tax (IGST) Act, 2017: “intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”

For most of the GST era, the classification mattered because of a special place-of-supply rule. Section 13(8)(b) of the IGST Act fixed the place of supply of intermediary services at the location of the supplier of the intermediary service, so an Indian agent or facilitator working for an overseas principal always had an Indian place of supply and could never treat the fee as an export of services, however it was billed.

That rule no longer exists. Section 157 of the Finance Act, 2026 omitted clause (b) of section 13(8) of the IGST Act, and CBIC's consolidated text of the Act carries the omission with no caveat. The Finance Act, 2026 (No. 4 of 2026) received the President's assent on 30 March 2026, and its section 1(2) defers only sections 2 to 129, clause (b) of section 152 and section 156 (to 1 April 2026) and sections 153 to 155 (to a date to be notified). Section 157 is in neither list, so the omission took effect on assent, 30 March 2026. From that date the place of supply of a cross-border intermediary service is now determined by the default rule in section 13(2) — the location of the recipient of services. An Indian intermediary acting for a principal outside India therefore has a place of supply outside India, and its fee can qualify as an export of services if the remaining conditions in section 2(6) of the IGST Act are met. The definition in section 2(13) is untouched, so whether a business is an intermediary is decided exactly as before; only the consequence has changed.

Legal Basis

Definition — Section 2(13) of the IGST Act, 2017

The definition has three moving parts, all of which must be satisfied together: (1) the person is a broker, agent, or similarly-positioned facilitator; (2) they arrange or facilitate a supply between two or more other persons; and (3) they do not supply that same good, service, or security on their own account. CBIC's Circular No. 159/15/2021-GST, dated 20 September 2021 (F. No. CBIC-20001/8/2021-GST), notes that the GST definition was carried over almost unchanged from the erstwhile Service Tax regime's Place of Provision of Services Rules, 2012, with one addition — intermediary now also covers facilitation of a supply of securities.

Place of Supply — The Omission of Section 13(8)(b)

Section 13 of the IGST Act governs place of supply only where the supplier or the recipient of the service is located outside India. Within that cross-border frame, section 13(8) fixes the place of supply at the location of the supplier for a short list of services. As the current text of section 13 in CBIC's GST legal database shows, that list now reads: clause (a), services supplied by a banking company, financial institution or non-banking financial company to account holders; clause (b), shown as omitted; and clause (c), hiring of means of transport (excluding aircraft and vessels) for up to one month. The footnote to the omitted clause records: "Omitted by section 157 of The Finance Act, 2026 (No. 4) of 2026 dated 30.03.2026."

With clause (b) gone, nothing in section 13 singles out intermediary services, so section 13(2) applies: the place of supply is the location of the recipient of services (or, where that location is not available in the ordinary course of business, the location of the supplier). Two practical consequences follow. For an Indian intermediary billing an overseas principal, the place of supply is now outside India, so the export test in section 2(6) can be satisfied and the supply zero-rated under section 16 of the IGST Act. The omission is prospective and carries no retrospective effect: supplies made up to 29 March 2026 remain governed by clause (b), so open assessments and past returns for those periods are still decided under section 13(8)(b).

A purely domestic intermediary arrangement was never governed by section 13 at all. CBIC's Circular No. 159/15/2021-GST said so at paragraph 3.6: the specific place-of-supply provision for intermediary services "shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India." Where both parties are in India, section 12 applies as it always has.

The Four Tests From CBIC Circular No. 159/15/2021-GST

Facing widespread disputes over whether outsourced or facilitation-style contracts counted as "intermediary" services, CBIC issued Circular No. 159/15/2021-GST to lay down a consistent test. The circular sets out four conditions that must all be present:

1. A minimum of three parties. There must be two principals transacting the main supply and a third party arranging or facilitating it. A two-party contract, however structured, cannot be an intermediary arrangement.
2. Two distinct supplies. The "main supply" runs between the two principals; the "ancillary supply" is the facilitator's own service of arranging or facilitating that main supply. The circular is explicit that a person providing the main supply on a principal-to-principal basis cannot also be treated as the intermediary for that same supply.
3. A subsidiary, agent-like role. The facilitator's function must be to arrange or facilitate — not to perform the underlying service itself. The circular reads the word "means" in section 2(13) as a closed, non-expandable definition, so the role is inherently supportive rather than substantive.
4. No supply on one's own account. A person who supplies the goods, services, or securities themselves — even partly, and even under a sub-contract — is excluded from the definition, because the word "such" in section 2(13) ties the exclusion back to the main supply being facilitated.

What Is Not an Intermediary Service — Sub-Contracting and Principal-to-Principal Supply

The circular treats sub-contracting as the clearest illustration of what falls outside the intermediary definition. If a supplier outsources part or all of a contracted service to a sub-contractor, the sub-contractor is providing the main supply to the original supplier on its own account — even though the sub-contractor may deal directly with the original supplier's end customer. The circular's own illustration: a software company contracted to build a customized product outsources one module's design and development to another firm, which interacts with the end client to gather requirements. That firm is not an intermediary — it is supplying design and development services to the contracting company on a principal-to-principal basis. The same logic applies to a BPO firm engaged to run a manufacturer's customer care desk: the BPO is supplying customer care services on its own account, not arranging a supply between two other parties.

This distinction was the entire commercial stake for foreign companies structuring an Indian delivery arm while section 13(8)(b) stood: a contract drafted so that the Indian entity provided the underlying service directly — development, support, back-office processing, claims handling — rather than merely locating counterparties for an overseas principal, kept it outside the intermediary definition and preserved export treatment. From 30 March 2026 both routes can reach the same place-of-supply answer, but the distinction still decides exposure for periods up to 29 March 2026 and still governs what the Indian entity is taxed on.

Structures That Meet the Intermediary Definition

• Sales and sourcing agents. An Indian agent who identifies buyers or sellers and helps close a deal between a foreign principal and an Indian (or third-country) counterparty for a commission is the textbook intermediary — this is Illustration 1 in Circular No. 159/15/2021-GST, where an agent who locates a buyer and helps finalize a machine sale is held to be facilitating the main supply, not making it.
• Claims-processing and back-office arrangements structured as facilitation. The circular's own Illustration 3 involves a foreign insurer that engages an Indian firm to arrange claims-processing services from a separate Indian provider, for a percentage commission — that arranging firm is an intermediary, even though the actual processing work is done by someone else entirely.
• Marketing and liaison support paid on a commission or referral basis. Where an Indian entity's role is to generate leads or facilitate a sale that a foreign principal itself closes and bills, the arrangement tends toward intermediary rather than an independent service.
• Broking of securities and financial instruments. The 2017 addition of "securities" to the definition brings share and instrument brokers squarely within its scope.

Why It Matters for Foreign Companies and Investors

Many foreign companies set up an Indian subsidiary or engage an Indian vendor expecting the arrangement to qualify as an export of services — zero-rated, supplied under a Letter of Undertaking, with no GST cost passed on to the overseas principal. Until 30 March 2026 the intermediary rule broke that assumption whenever the Indian entity's function was to arrange or facilitate a deal rather than perform it. Three points now matter:

• Going forward, intermediary status no longer blocks export treatment. With section 13(8)(b) omitted, the place of supply for an Indian facilitator billing an overseas principal is the principal's location, outside India. The fee can be zero-rated provided every condition in section 2(6) is met: an Indian supplier, a recipient outside India, a place of supply outside India, payment in convertible foreign exchange or in Indian rupees wherever the Reserve Bank of India permits, and supplier and recipient not merely two establishments of the same person. That last condition still bars an Indian branch or project office of the foreign principal, because Explanation 1 to section 8 treats an Indian and an overseas establishment of one person as distinct persons; a separately incorporated subsidiary is not caught by it.
• Earlier periods remain exposed. The omission is prospective. Supplies made up to 29 March 2026 remain governed by clause (b), and a business that treated those supplies as zero-rated exports can still face a show-cause notice reclassifying them, with GST, interest, and penalty on the historical value.
• Classification still has consequences. Being an intermediary continues to determine the value on which GST is charged — the commission, not the value of the main supply — and how a domestic arrangement is taxed under section 12. Contract drafting still decides the answer, because the circular's four tests look at the substance of what the Indian party does, not at the invoice description.

Practical Example

A US-based software company sells its platform directly to enterprise customers worldwide and bills them from the US. Its Indian subsidiary's team identifies prospective Indian customers, arranges introductory meetings, and helps negotiate terms — but the US parent signs the license agreement and invoices the customer directly. The Indian subsidiary invoices the US parent a facilitation fee in US dollars for each closed deal.

Under section 2(13) of the IGST Act, the Indian subsidiary is arranging the main supply (the software license) between the US parent and the Indian customer, and is not itself supplying the license. It meets all four tests from Circular No. 159/15/2021-GST: three parties, two distinct supplies, a subsidiary facilitating role, and no supply on its own account. It is an intermediary, and that has not changed.

What changed is the tax outcome. For fees invoiced up to 29 March 2026, section 13(8)(b) fixed the place of supply at the subsidiary's own location in India, the export test in section 2(6) failed on condition (iii), and the subsidiary had to charge and remit GST that its US parent could not recover. For fees invoiced from 30 March 2026, section 13(2) applies instead: the place of supply is the recipient's location in the United States. The subsidiary is a separate legal person from its parent, so the section 2(6)(v) bar on two establishments of a single person does not apply, and the fee qualifies as an export of services — zero-rated under section 16, supplied under a Letter of Undertaking without payment of tax, or with tax paid and refunded.

Common Mistakes

• Assuming foreign-currency billing settles the question. The foreign-exchange condition is only one of the five conditions in section 2(6), and it no longer reads "convertible foreign exchange" alone — payment in Indian rupees also counts wherever the Reserve Bank of India permits it. Every one of the five conditions has to be met.
• Treating "agent" versus "distributor" as a formality. A distributor who buys and resells on its own account is not an intermediary; an agent who merely arranges a sale between a foreign principal and the end customer typically is. The commercial substance of who bears the risk and title, not the job title used in the contract, controls the analysis.
• Missing that sub-contracting is a genuine exit route. Restructuring a facilitation arrangement so the Indian entity performs (or sub-contracts and remains responsible for) the underlying service itself, rather than merely introducing the counterparties, is the circular's own stated basis for falling outside the definition.
• Relying on pre-2026 advice or advance rulings without checking the date. Most published commentary, advance rulings, and High Court litigation on intermediary services was decided while section 13(8)(b) was in force. It still governs supplies made up to 29 March 2026, but it does not describe the position from 30 March 2026 onwards.
• Forgetting the rule only ever applied cross-border. Section 13 is engaged only when the supplier or the recipient of the intermediary service is outside India (Circular No. 159/15/2021-GST, para 3.6); a wholly domestic broking or agency arrangement is, and always was, taxed under the section 12 place-of-supply rules.

See also: Goods and Services Tax (GST), GST Registration, and Reverse Charge Mechanism (RCM).

Frequently Asked Questions

Can an Indian intermediary treat its fee as an export of services?

For supplies made on or after 30 March 2026, yes, if the other conditions are met. Section 157 of the Finance Act, 2026 omitted section 13(8)(b) of the IGST Act with effect from the date of assent, so the place of supply of a cross-border intermediary service is now the recipient's location under section 13(2). Where the recipient is outside India, the supply can meet all five conditions in section 2(6) and be zero-rated. For supplies made up to 29 March 2026, the old rule applied and the fee was taxable in India.

Can an Indian subsidiary of a foreign company be an intermediary to its own parent?

Yes. The intermediary test looks at what the Indian entity actually does — arranging or facilitating a supply between the parent and a third party — not at the corporate relationship between the entities. A wholly owned subsidiary that sources local customers or vendors for its foreign parent can be classified as an intermediary in exactly the same way as an unrelated agent.

Is reinsurance or insurance claims-processing facilitation treated as intermediary services?

It can be. CBIC's Circular No. 159/15/2021-GST specifically illustrates a case where an Indian firm is engaged by a foreign insurer to arrange claims-processing services from another Indian provider, for a commission — that arranging firm is held to be an intermediary, even though it performs none of the underlying claims work itself.

Does GST registration change whether a service counts as intermediary?

No. GST registration is a separate compliance requirement; it does not affect whether a supply meets the four tests in section 2(13) of the IGST Act. Registration status determines who must charge and remit the GST once a supply is classified — it plays no role in the classification itself.

Can the intermediary's Indian customer claim credit for the GST charged?

Only a GST-registered person in India can claim input tax credit on GST charged by an intermediary. A foreign principal with no Indian GST registration has no mechanism to recover it. That was the practical sting of the old section 13(8)(b), and it is why demands raised on periods up to 29 March 2026 still bite: the tax cannot be passed back to the overseas principal.