The IT-ITES industry continues to face critical international taxation challenges that impact its global competitiveness and ease of doing business. Recent developments indicate progress, driven largely by sustained industry advocacy.
1. Offshore–Onsite Delivery Models & GST Relief
A long-standing concern has been the treatment of foreign branches and head offices as separate entities under GST, leading to significant tax demands on deemed import of services. The recent Circular No. 210/4/2024-GST clarifies that companies can declare the value of such transactions, even as nil, without facing tax demands, provided full input credit applies. Notably, substantial GST demands against companies like Infosys have been set aside following this intervention.
2. Misclassification of IT-ITES Exports as Intermediary Services
The misclassification of genuine exports as "intermediary services" has resulted in blocked input credits and unnecessary litigation. Though Circular 159/15/2021-GST aimed to address this, challenges persist. A dedicated Group of Officers is now reviewing the "place of supply" rules to mitigate these issues and reinforce India as a global digital services hub.
3. Transfer Pricing Reforms: Safe Harbour & APA Improvements
India’s Safe Harbour Regime and Advance Pricing Agreements remain restrictive and underutilised, burdening Global Capability Centres with aggressive tax scrutiny. Nasscom is advocating for reforms, including raising eligibility thresholds, rationalising mark-up margins, and simplifying APA processes to enhance certainty and compliance efficiency.
These reforms are vital for maintaining India’s status as a competitive, predictable, and investment-friendly destination for high-value digital and IT-ITES services.
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