Many businesses in India have branches in different countries of the world. There are scenarios where a business unit in India provides services to its branch in a different country. How will such supplies be treated under GST? Will they be considered as export of service and hence, be zero rated, will they be considered as non-taxable supplies, as the place of supply of the service is outside India or will they be taxable? Let us understand how the supply of service by a unit in India to a branch outside India will be treated under GST.
Treating services provided to overseas branches under GST
For a supply of service to be considered as an export, certain conditions have been laid down, which we have discussed in our earlier blog. Let us list them down again:
- The supplier of the service should be located in India.
- The recipient of the service should be located outside India.
- The place of supply of the service should be outside India
- The payment for the service should be received by the supplier in convertible foreign exchange, and
- The supplier and recipient are not establishments of the same person.
When a service is provided by a unit in India to a branch outside India, all of the above conditions can be satisfied, except the condition ‘The supplier and recipient are not establishments of the same person’. As the unit in India and the branch outside India are establishments of the same person, this supply cannot be considered as an export of service. This also means that supply of service to a branch outside India will not be zero rated and hence, the tax paid on inputs will not be refunded.
This supply will also not be a non-taxable supply as it is not listed among the exempt supplies. In the previous tax regime, services provided to overseas branches were treated as non-taxable supplies, as the place of provision of service is outside India. However, this will not continue under GST.
Hence, supply of service to an overseas branch will be a taxable supply under GST. On such a supply, IGST has to be levied at the applicable rate, as the place of supply is outside India.
Example: Ramesh Solutions in Maharashtra has a branch in Singapore to which it provides consultancy services for Rs. 2,00,000. On this supply, Ramesh Solutions is liable to pay [email protected]%, which is Rs. 36,000.
Businesses which have projects or offices in locations outside India should note the change in tax treatment of services provided to overseas branches. Under GST, such services will be taxable. Hence, this will become an additional cost for the business and appropriate provisions need to be made for this.
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