What is Section 13(8)(b) and Why Is It Controversial?
Section 13(8)(b) of the IGST Act is the provision that determines the place of supply for intermediary services. Under this provision, the place of supply of intermediary services is the location of the supplier — meaning that even if the ultimate beneficiary of the service is overseas, the service is treated as an intra-India supply and is liable to GST at 18%.
This provision has been the subject of intense litigation since GST was introduced in 2017. Exporters, marketing service providers, and commission agents acting as intermediaries between Indian principals and foreign parties have argued that treating their services as domestic supplies — and thereby denying them zero-rated export status — is contrary to the intent of GST law and places them at a competitive disadvantage.
An Indian company earning commission from a foreign principal for sourcing Indian goods or connecting Indian sellers with foreign buyers should logically be an "exporter of services." But Section 13(8)(b) says the place of supply is India — making the transaction subject to 18% GST instead of 0% (zero-rated export).
What Did the Finance Act 2026 Change?
The Finance Act 2026 amended Section 13(8)(b) to narrow the definition of "intermediary" for GST purposes. The amendment clarifies that Section 13(8)(b) applies only to intermediaries who are involved in the supply of goods or services between two parties — and explicitly excludes certain categories of services from the intermediary classification:
- IT-enabled services provided by Indian companies to foreign clients where the Indian company acts on its own account (not as an agent)
- Business auxiliary services where the service provider takes principal-to-principal risk
- Research and development services where IP is transferred to the foreign client
The amendment is a partial win for exporters, but significant ambiguity remains around marketing support services, after-sales support, and commission-based arrangements.
Who Is Still an Intermediary After the Amendment?
The amended Section 13(8)(b) continues to apply to genuine intermediaries — those who arrange or facilitate supplies between a principal supplier and a recipient, without themselves being the principal in the supply. Classic examples include:
- Commission agents who connect Indian exporters with foreign buyers and earn a percentage of the invoice value
- Sourcing agents acting on behalf of foreign companies to procure goods from India
- Sub-brokers and distribution agents who represent foreign principals in India
| Service Type | Pre-Amendment | Post-Amendment (2026) | GST Impact |
|---|---|---|---|
| IT services (own account) | Intermediary risk | Excluded from 13(8)(b) | Zero-rated export |
| Commission agent for exports | Intermediary | Still intermediary | 18% GST |
| R&D with IP transfer | Intermediary risk | Excluded | Zero-rated export |
| Marketing support (no principal risk) | Intermediary | Still ambiguous | Likely 18% GST |
Practical Steps for Businesses
- Review your service agreements with foreign clients to identify whether you act as principal or agent
- Assess whether your service falls within the exclusions introduced by the Finance Act 2026
- For commission-based arrangements, analyse whether restructuring the agreement (e.g., moving to a fixed-fee principal-to-principal arrangement) can take the service outside the intermediary classification
- For pending refund claims denied on Section 13(8)(b) grounds, assess whether the amendment enables a fresh claim
- For ongoing litigation, assess whether the amendment strengthens or weakens the taxpayers position