In the age of globalisation, cross-border transactions have increased substantially across manufacturing, technology, and services. It is essential to analyse the applicability of goods and services tax (GST) on imports, exports, intermediary arrangements, and related-party supplies.
Place of supply rules under the IGST Act determine whether a transaction is treated as an export, import of services, or a supply outside India. Reverse charge, exemptions, and Schedule III entries must be evaluated transaction by transaction.
This article discusses intermediary services, distinct person supplies, merchanting trade and high sea sales, ocean freight, and tax collected at source (TCS) on foreign remittances under the Liberalised Remittance Scheme (LRS).
1. Intermediary services in cross-border transactions
“Intermediary” is defined in Section 2(13) of the IGST Act as a broker, agent or any person who arranges or facilitates supply of goods, services or securities between two or more persons, but does not include a person who supplies such goods or services on his own account.
Circular No. 159/15/2021-GST clarifies that there are two distinct supplies:
- The main supply between the two principals; and
- The ancillary supply of facilitating or arranging the main supply.
The characterisation as intermediary depends on facts: who contracts with the customer, who bears inventory risk, and whether the person is acting as principal or agent.
Commission to foreign agent (export commission)
For taxability of export commission paid to an overseas agent, consider:
- Whether the overseas agent is an “intermediary” under Section 2(13) IGST — typically yes for export commission agents arranging export sales.
- Whether the service is “import of services” under Section 2(11) — requires supplier outside India, recipient in India, and place of supply in India.
- For intermediary services, place of supply under Section 13(8)(b) is the location of the supplier. Condition (iii) is therefore generally not met; it is not import of service.
- Accordingly, GST under reverse charge under Section 5(3) IGST is typically not payable (see Advance Ruling in Dry Blend Foods Pvt Ltd and similar rulings).
- Document contracts, invoices, and nature of services to support non-taxability or exemption positions.
Intermediary services with both parties outside India
Services by an intermediary are exempt under Entry 12AA of Notification 20/2019-IGST (Rate) when the location of both the supplier and recipient of goods is outside the taxable territory (effective 1 October 2019). Indian entities paying such commissions should retain evidence of location of principals.
Contrast: import of non-intermediary services
Where place of supply is India (e.g. consulting received in India from a foreign consultant who is not an intermediary), IGST under reverse charge may apply. ITC eligibility follows general Section 16 conditions.
2. Supply of services to distinct person outside India
Under Explanation 1 to Section 8 IGST, establishments in India and outside India of the same person are distinct persons. Supply to a distinct person outside India is not export under Section 2(6) when both establishments belong to the same legal entity.
Notification 15/2018-IGST (Rate) exempts such supply if the place of supply is outside India under Section 13 IGST. Typical examples include support services, management charges, and IT services charged to foreign branch or subsidiary if place of supply is outside India.
Practical checks
- Identify distinct persons in GST registration (separate GSTINs or overseas establishment records).
- Apply Section 13 tests for B2B services (location of recipient) and B2C rules where relevant.
- Issue invoices with appropriate place of supply and SAC; reflect in GSTR-1/GSTR-3B consistently.
3. Schedule III — merchanting trade, bonded warehouse and high sea sales
The CGST Amendment Act, 2018 inserted Entries 7 and 8 in Schedule III (effective 1 February 2019). Such transactions are neither supply of goods nor services under Section 7(2)(a) CGST Act.
- Entry 7: Supply of goods from a place in non-taxable territory to another such place without entry into India (merchanting trade).
- Entry 8(a): Supply of warehoused goods before clearance for home consumption (bonded warehouse).
- Entry 8(b): Supply by endorsement of documents of title after dispatch from foreign port but before clearance for home consumption (high sea sales).
Documentation of title transfer, bills of lading, and customs status is critical. Parties should not charge GST on Schedule III transactions but must maintain audit trails for income tax and FEMA purposes separately.
4. Ocean freight and international transportation
Inbound ocean freight
Where the shipping line is outside India, importers historically faced IGST at 5% on ocean freight under reverse charge in certain CIF/FOB structures when the line was outside India and freight was a separate element.
Notification 11/2023-Integrated Tax (Rate) exempted IGST on ocean freight for transportation of goods by vessel from outside India to the customs station of clearance in India (effective 1 October 2023). Review contracts post-amendment for compliance and ITC positions on ancillary charges.
Outbound freight
Exemption for outbound international freight under Notification 02/2018 expired on 30 September 2022. From 1 October 2022:
| Description | Until 30.09.2022 | From 01.10.2022 |
|---|---|---|
| Air export freight (Entry 20A) | Exempt | Taxable @ 18% |
| Ocean export freight (Entry 20B) | Exempt | Taxable @ 5% |
Exporters should negotiate freight terms and verify whether Indian or foreign lines issue invoices with GST. Export of services rules may apply where place of supply is outside India.
5. TCS on foreign remittances under LRS
The Liberalised Remittance Scheme (LRS) allows resident individuals to remit up to USD 250,000 per financial year abroad for permitted current and capital account transactions through authorised dealers.
Finance Act, 2023 amended Section 206C(1G) to increase TCS from 5% to 20% for LRS remittances and overseas tour packages, and removed the ₹7 lakh threshold for LRS (with exceptions for education and medical treatment in specified conditions).
Press Release dated 28 June 2023 and Circular 10/2023 dated 30 June 2023 deferred the increased rate applicability from 1 July 2023 to 1 October 2023, with threshold of ₹7 lakh per financial year on all LRS payments.
TCS rates (summary)
| Purpose | Rate above ₹7 lakh per FY (typical) |
|---|---|
| Education (loan from financial institution u/s 80E) | 0.5% |
| Education / medical (own funds) | 5% |
| Overseas tour package | 20% (5% on first ₹7 lakh for tour packages per notifications) |
| Other LRS purposes | 20% |
GST on remittance and banking charges
GST applies on currency conversion and remittance service charges levied by banks or authorised dealers, not on the principal remittance amount or TCS itself. LRS is not available to companies, partnership firms, HUF, trusts, and other non-individual entities.
Individuals should plan cash flows for TCS credit against income-tax liability and maintain Form 16A / AIS records.
TCS return due dates (Form 27EQ)
| Quarter ended | Due date |
|---|---|
| 30 June | 15 July |
| 30 September | 15 October |
| 31 December | 15 January |
| 31 March | 15 May |
6. Integrated compliance checklist
- Classify each cross-border payment as goods, services, royalty, or capital transaction.
- Determine place of supply and RCM applicability; capture in vendor master data.
- Coordinate GST positions with Form 145/146 and FEMA reporting where remittances arise.
- Reconcile GSTR-2B for import of services and bill of entry data for goods.
- Train treasury and accounts payable on LRS/TCS changes affecting employee reimbursements and director travel.
This article summarises professional topics for general information. GST and TCS provisions change frequently; verify current law, notifications, and obtain advice for specific transactions.