BPO providers in India serving foreign clients will no longer need to pay 18% tax on services, with the country’s Goods and Services Tax (GST) Council agreeing not to regard them as “intermediaries”.
The decision helps BPO firms save millions of dollars in tax payments, according to the country’s financial daily The Economic Times.
Tax authorities in India have long regarded BPO providers as intermediaries, requiring them to pay 18% GST. Many IT-enabled services providers and foreign-owned R&D centers were also treated similarly, according to the report.
In late 2017, few BPO providers began disputing the tag as an intermediary, arguing that they were not brokers and that they were providing key services to their foreign clients.
From now on, the BPO providers serving foreign clients will be treated as service exporters, meaning they will no longer need to pay service tax. However, BPOs serving domestic clients will not be exempted.
Analysts say the move is part of the government’s plan to simplify the taxation regime and reduce GST disputes.
India’s BPO industry has employed around 1.5 million people, but it looks significantly smaller when compared with the country’s IT services sector, which includes global giants such as TCS, Infosys, and HCL Tech.