GST on Cross-Border Services in India — Reverse Charge Mechanism, Import of Services and Zero-Rated Export Advisory
Cross-border transactions involving services are among the most misunderstood and most frequently non-compliant areas of GST for foreign companies operating in India. The rules governing when GST applies to services received from outside India, who is liable to pay it, whether input tax credit can be claimed, and how services exported from India are treated for GST purposes are complex, fact-specific, and carry significant financial exposure when applied incorrectly.
At A2 Consultants, we provide specialist advisory on GST implications for cross-border service transactions — covering reverse charge liability on import of services, place of supply determination, zero-rated treatment of service exports, LUT filing, refund of accumulated ITC, and compliance for foreign companies providing digital and professional services into India.
Import of Services — Reverse Charge Mechanism
When an Indian entity — whether a subsidiary, branch office, or liaison office — receives services from a foreign entity, the transaction constitutes an import of services under the IGST Act. The liability to pay GST on imported services falls on the Indian recipient under the reverse charge mechanism — not the foreign service provider. This applies regardless of whether the foreign service provider is registered for GST in India.
Who Is Liable
Any registered person in India who receives services from a supplier located outside India is liable to pay IGST under reverse charge on the import of services. This includes Indian subsidiaries receiving management fees, technical services fees, IT services, legal advisory, marketing support, software licences, and any other service from their foreign parent or group companies.
What Constitutes Import of Services
Import of services under the IGST Act requires three conditions to be satisfied simultaneously — the supplier must be located outside India, the recipient must be located in India, and the place of supply must be in India. Where all three conditions are met, the transaction is treated as an inter-state supply of services and IGST applies at the applicable rate under the reverse charge mechanism.
Common Intercompany Transactions Subject to Reverse Charge
The most frequent import of services scenarios for foreign companies with India operations include management fees charged by the foreign parent to the India subsidiary, technology licence fees and software subscription charges, shared services fees for group functions such as HR, finance, IT, and legal, brand royalties and franchise fees, guarantee commission charged by the foreign parent, and professional fees for advisory services rendered by overseas group entities or third-party foreign advisors.
RCM Compliance — Payment, ITC and Return Filing
GST under reverse charge must be paid in cash — it cannot be offset against input tax credit balance. Payment is made through Form GSTR-3B in the month the liability arises. Once paid, the GST paid under reverse charge is eligible for input tax credit in the same return period — provided the Indian recipient is a registered taxpayer using the services for business purposes and not for exempt supplies. The net cash flow impact is therefore nil for most registered businesses, but the compliance obligation — correct identification of the transaction, correct rate determination, and correct reporting in GSTR-3B and GSTR-1 — is mandatory and attracts penalties when missed.
Place of Supply for Import of Services
The place of supply for import of services is the location of the recipient in India. For most intercompany service transactions this is straightforward — the Indian subsidiary's registered address. However for specific categories of services — immovable property related services, performance-based services, and services to unregistered persons — special place of supply rules apply and may alter both the taxability and the applicable GST rate.
Export of Services — Zero-Rated Supply and LUT Filing
When an Indian entity provides services to a recipient located outside India and receives payment in foreign currency, the transaction qualifies as an export of services and is treated as a zero-rated supply under the IGST Act. Zero-rated supply means GST is not charged on the output — but unlike exempt supplies, the exporter retains the right to claim refund of input tax credit accumulated on account of the zero-rated output.
Conditions for Export of Services
For a service transaction to qualify as export of services under GST, five conditions must be satisfied — the supplier must be located in India, the recipient must be located outside India, the place of supply must be outside India, payment must be received in convertible foreign exchange or Indian rupees where permitted by RBI, and the supplier and recipient must not be merely establishments of the same person in different countries merely by virtue of being related parties.
The fifth condition is the most operationally complex for foreign companies with India subsidiaries. Where the Indian GCC or subsidiary provides services exclusively to its foreign parent — which is the standard GCC model — the transaction is between establishments of the same legal entity across countries. The GST law treats such transactions as inter-state supplies under Schedule I rather than exports — making them taxable rather than zero-rated. Navigating this correctly, including the use of the distinct person concept and the available structuring options, is one of the most important GST advisory questions for GCC operators in India.
Letter of Undertaking — LUT Filing
A registered Indian exporter of services can export without payment of IGST by filing a Letter of Undertaking in Form RFD-11 on the GST portal at the beginning of each financial year. The LUT is a declaration that the exporter will comply with GST export conditions and will realise foreign exchange within the prescribed time. Filing LUT before making zero-rated supplies is mandatory — exporters who do not file LUT must pay IGST on exports and claim refund subsequently, which creates cash flow implications.
We manage LUT filing at the start of every financial year for all service exporter clients and monitor compliance with LUT conditions including foreign exchange realisation timelines.
Refund of Accumulated ITC on Zero-Rated Exports
Indian entities exporting services under LUT accumulate input tax credit on their GST inputs — office rent, IT services, professional fees, and other taxable inputs — without any GST output liability to offset against. This creates an accumulated ITC balance that must be refunded by the GST department. The refund process involves filing Form RFD-01 with supporting documentation, and is subject to scrutiny, deficiency memos, and provisional refund mechanisms that require careful management to ensure timely receipt of refunds.
We manage the complete GST refund cycle for service exporters — from monthly refund application filing through response to deficiency memos and provisional refund tracking to final refund credit.
Place of Supply — The Foundation of Every Cross-Border GST Analysis
Every cross-border service transaction begins with a place of supply determination. The place of supply determines whether the transaction is taxable in India, which GST — IGST, CGST, or SGST — applies, and which rate applies. Incorrect place of supply determination leads to wrong tax payment, ITC mismatches in GSTR-2B reconciliation, and exposure to interest and penalties on short payment.
We conduct place of supply analysis as the first step in every cross-border service advisory engagement — covering B2B and B2C supplies, specific service categories with special rules, intermediary services, and the complex scenarios that arise when service recipients are spread across multiple jurisdictions.
Who This Service Is For
This service is designed for four distinct audiences. Indian subsidiaries and GCCs of foreign companies that pay intercompany fees to their foreign parent and need to correctly identify, pay, and claim credit for reverse charge GST on those payments. Indian IT, technology, and professional services companies that export services to foreign clients and need to manage LUT filing, zero-rated invoicing, and ITC refund processes. Foreign companies providing digital services, software, or professional services into India who need to understand whether their Indian clients have reverse charge obligations. And foreign companies that have received GST notices or assessments relating to cross-border service transactions and need dispute resolution support.