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Software services to Indian firm's overseas client are liable to GST

  • Jul 13, 2020 | Divita S Gupta

Software services to Indian firm's overseas client are liable to GST

The Tamil Nadu bench of the Authority for Advance Ruling has held that firms who are providing software services to an overseas client of an Indian company are liable to pay a GST of 18%. The applicant, a firm engaged in the business of providing software-related consultancy services in Oracle ERP had approached the Tamil Nadu bench of the AAR seeking an advance ruling to clarify whether the services provided by the company to a foreign client of a GST-registered IT company, shall be treated as export of services. The applicant in their submission claimed that their original contract was with the Indian company and their US-based client to provide consultancy services based on a fee. The foreign client was to pay consideration to the applicant as per their independently agreed upon contract value, which had no relevance to the contract between the applicant and the Indian company. The applicant claimed that an independent contract meant direct services to the foreign client even though the consideration fee was paid by the Indian company on behalf of the foreign client. The AAR held that there are two sets of contracts viz. one between the applicant and the Indian company for providing professional and consultancy services, and a second between the Indian company and its foreign client for providing software support services. As such, the applicant is not a party to the second contract. The AAR observed that the applicant's contention of being an agent to the Indian company could not be substantiated as email correspondence between the employees of the foreign company and the applicant does not imply that the applicant is in the business of supply of services on behalf of the Indian company as required under the definition of an agent. As such, services provided by the applicant to the Indian company counts as a supply of services under the CGST/TNGST Act, and the applicant is liable to pay 18% GST on such services. 

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.

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