GST on Export of Services in case of Outsourcing of services

GST on Export of Services in case of Outsourcing of services A welcome clarification from the Government on Outsourcing of services for export of services vide Circular No.78/52/2018-GST dated 31.12.2018. Synopsis of this clarification Exporter of Services located in India when outsourcing part oftheirwork to service provider in another country for servicingits client, then if 1.) RBI approves for retention of partial consideration outside India and 2.) If IGST is paid on reverse charge mechanism then, exporter of services in India can claim credit of IGST paid and also take full export benefit on full export value (including outsourced portion).

GST on Export of Services in case of Outsourcing of services

Example ABC Indiagets a contract for export of services toClientin USA for $ 500,000. ABC India outsources some ofthe services toXYZ inMexico (say 40%).Now, there are 2 options Option 1 ABC bills full $ 500,000to Client in USA. In this scenario XYZ Mexico bills $ 200,000 to ABC India and ABC India pays this to XYZ Mexico. On this $ 200,000 payment ABC India has to pay IGST on reverse charge considering this payment to XYZ Mexico as import of services. The IGST paid by ABC India can be availed as credit by ABC India when they bill $ 500,000 to the Client in USA and also can claim the entire $ 500,000 as export benefit Option 2 ABC billsits value of services of$ 300,000to Client in USA, XYZ Mexico bills to Client in USA its value of services $ 200,000 and both receive their respective payments from Client in USA.First, ABC India need to take approval from RBI for retaining part consideration outside India,and second, payon the $ 200,000 billing of XYZ Mexico IGST on reverse charge considering this payment to XYZ Mexico as import of services. The IGST paid by ABC India can be availed as credit by ABC India when they bill $ 300,000.If RBI approval is obtained and IGST paidon reverse charge the entire contract value of $ 500,000 can be considered as export benefit by ABC India Click here to read other Articles of the Author