You can have a foreign client, a dollar invoice and a FIRA in hand and still not have a zero-rated export under GST. That happens when your service is treated as an intermediary service: arranging or facilitating a supply between two other parties, rather than supplying the main service yourself. For intermediaries, the IGST Act has a special place-of-supply rule that generally points to the supplier's location in India, which knocks out one of the five export conditions.
Key takeaways
- Export of services needs all five conditions in Section 2(6) of the IGST Act, including place of supply outside India.
- An intermediary arranges or facilitates supplies between others. It is not the same as subcontracting or supplying on your own account.
- For intermediary services, the place of supply is generally where the supplier is located, so an Indian intermediary may end up with a domestic, taxable supply.
- Agents, sourcing offices, referral partners and some group support functions are the typical risk areas.
- Contracts, invoices and actual conduct all matter. Get a CA's view before you assume zero-rating.
The export test you have to pass
GST treats a supply of services as an export only when every one of these holds:
- The supplier is located in India.
- The recipient is located outside India.
- The place of supply is outside India.
- Payment is received in convertible foreign exchange (or in Indian rupees where RBI permits).
- The supplier and recipient are not merely establishments of a distinct person.
Most service exporters clear these easily. For a software build or a marketing retainer, the place of supply generally follows the recipient's location, which is abroad. The intermediary rule is the main exception, because it moves the place of supply to the supplier's side. Fail condition 3 and you no longer have an export, whatever the other four say. Our explainer on the five conditions in Section 2(6) covers each one.
What makes someone an intermediary
The idea is a go-between. An intermediary brings two parties together, negotiates on behalf of one of them, or helps a sale happen between them, without being the party that actually supplies the main goods or services.
| Feature | Intermediary | Principal-to-principal supplier |
|---|---|---|
| Who supplies the main service? | Someone else | You do |
| What are you paid for? | Arranging, facilitating, finding buyers or suppliers | Doing the work |
| Typical pay structure | Commission or percentage of a third party's deal | Fixed fee, time and materials, milestones |
| Who bears delivery risk? | The actual supplier | You |
| Typical contract wording | "Agent", "facilitate", "procure on behalf of" | "Provide", "develop", "deliver" |
The definition also generally excludes a person who supplies the main service on their own account. So a subcontractor who builds software for a foreign company, which then sells it to its own customers, is usually not an intermediary. They supply the software development itself.
Real-world patterns: who is at risk
Here are three fictional businesses with the same foreign client base and very different GST outcomes.
Corvid Sourcing Pvt Ltd identifies Indian textile suppliers for a Dutch retailer, negotiates prices, checks samples and follows up on shipments. The retailer pays Corvid 4% of the value of goods bought. The goods move directly from supplier to retailer. Corvid's role looks like arranging a supply between two other parties, which is the classic intermediary pattern.
Marigold Code Labs LLP builds a booking platform for a London travel firm on a fixed-fee contract. Marigold writes the code, owns the delivery risk and hands over the product. Marigold supplies the main service itself. Not an intermediary.
Juniper Referral Partners introduces Indian software vendors to a US healthcare company and earns a finder's fee from the US company for each signed deal. The service is matchmaking between the US company and the vendors. Again, this has the features of an intermediary.
Group structures produce harder cases. An Indian subsidiary that provides marketing support and customer liaison for its foreign parent's sales to Indian customers may be treated as facilitating the parent's supplies. One that runs software engineering for the parent's own products usually is not. The facts decide, and the facts are found in what people actually do, not only in the contract's title.
What happens if you are an intermediary
If the place of supply is in India, the service is a domestic supply. You would generally charge GST (IGST or CGST plus SGST depending on how the rules apply to you) and pay it, even though the client is overseas and pays in foreign currency. An LUT does not help, because LUT is for zero-rated exports and this is not one.
The cost is real. Many foreign principals will not pay Indian GST on top of the fee, so it comes out of your margin. And if you treated the service as an export for a few years and the department disagrees later, you are looking at tax, interest and potentially penalties on past invoices.
The FEMA side is separate. Your foreign currency receipt still comes through the bank, and depending on your activity you may still have EDF obligations. The EDF is a FEMA declaration and does not change your GST position in either direction. This is general information, not legal or tax advice.
Reducing the risk
- Read your contract as an outsider would. Words like "agent", "facilitate", "on behalf of" and "commission" invite an intermediary reading.
- Bill for the work you do. If you provide research, quality inspection or design, describe and price those services directly rather than as a percentage of someone else's sale.
- Match conduct to paper. If the contract says you deliver a service, your emails, deliverables and timesheets should show it.
- Use honest SAC codes and descriptions. A vague "facilitation fee" on an invoice is an invitation for questions. The SAC code finder helps you pick a code that describes the actual service.
- Get a written opinion for borderline models, especially commission-based ones and group cross-charges.
Frequently asked questions
What are intermediary services under GST?
They are services of arranging or facilitating the supply of goods or services between two or more other persons, such as an agent or broker. A person who supplies the main goods or services on their own account is generally not treated as an intermediary.
Why don't intermediary services qualify as exports?
Export of services requires the place of supply to be outside India. For intermediary services, the IGST Act generally sets the place of supply at the supplier's location, so an Indian intermediary's supply is treated as domestic even if the client is abroad.
Is a subcontractor for a foreign company an intermediary?
Usually not. A subcontractor who performs the actual work, such as writing software or producing designs, supplies the service on its own account. Problems arise when your role is to connect the foreign company with someone else who does the work.
Can I use an LUT for intermediary services?
No. LUT covers zero-rated supplies such as exports. If your service is an intermediary service with place of supply in India, it is not zero-rated, so GST is generally payable. Confirm your classification with a CA first.
Does the intermediary issue affect my EDF?
The EDF is a FEMA declaration and does not change GST obligations. Whether you need to file an EDF depends on FEMA rules for your activity, not on the GST classification. Ask your AD bank how it wants commission-type receipts declared.
Bottom line
The intermediary question is about what you really do: supply a service, or help someone else supply one. If it is the latter, assume GST applies until your CA says otherwise. For services that do qualify, use the free export invoice generator to add the correct LUT wording, and see our guide to zero-rated supply for the basics.
This guide is general information for Indian businesses, not legal or tax advice. Rules and bank processes change — confirm specifics with your AD bank or chartered accountant.