Budget 2026 killed 18% GST on your export commissions

For eight years, Indian export commission agents paid 18% GST on services delivered entirely to foreign clients. That tax was not a feature of the law. It was a bug. The Union Budget 2026 finally squashed it.

Finance Minister Nirmala Sitharaman's Finance Bill 2026 proposes to delete Section 13(8)(b) of the IGST Act. This single clause has required intermediary services to be treated as domestic since July 2017. Its removal means your export commissions can now qualify as a zero-rated supply under GST. You pay nothing. You keep everything you earn.

This is easily the most important of all Budget 2026 GST changes for anyone earning foreign exchange through facilitation, brokerage, or trade intermediation. Here is what changed, why it matters, and what you must do next.

What did Section 13(8)(b) actually do to your money?

Under normal GST rules, the place of supply for cross-border services follows the recipient. If your client sits in London, the place of supply is London. That makes the transaction an export. Exports are zero-rated. No GST applies.

Section 13(8)(b) broke this logic for one specific category: intermediary services. It created an artificial rule that fixed the place of supply at the supplier's location. Since you sit in India, every commission you earned from a foreign client was treated as a domestic supply. The full 18% GST — 9% CGST plus 9% SGST — is applied on every rupee.

Your foreign client could not claim input tax credit in India. You could not pass the cost forward. The 18% became a dead weight on your pricing. Indian intermediaries became 18% more expensive than competitors in Dubai, Singapore, or Hong Kong overnight.

The definition of "intermediary" under Section 2(13) of the IGST Act casts a wide net. It covered brokers, agents, and any person who arranges or facilitates supply between two parties without supplying on their own account. Export commission agents, trade facilitators, IT service coordinators, and even some back-office support providers fell within its scope.

Consider a simple example. An Indian agent earns ₹10 lakh per year connecting Indian manufacturers with buyers in Europe. Under Section 13(8)(b), this agent owed ₹1.8 lakh in GST on that income. The European buyer had no way to absorb or recover this tax. The agent either ate the cost or lost the client to a rival based in Dubai who faced no such burden. Multiply this across thousands of intermediaries, and the damage to India's service export competitiveness becomes clear.

The eight-year legal battle that preceded the fix

The GST on the provision of intermediary services triggered massive litigation almost immediately after the GST was launched in 2017. The 139th Parliamentary Standing Committee on Commerce flagged the problem in December 2017 and recommended amending Section 13(8). The government did not act.

Courts delivered conflicting signals. The Gujarat High Court upheld Section 13(8)(b) as constitutionally valid in Material Recycling Association of India v. Union of India in 2020. The Bombay High Court split dramatically in Dharmendra M. Jani v. Union of India. One judge declared the provision unconstitutional. The other upheld it. The petitioner in that case showed his effective tax rate jumped from 28% to nearly 44% after GST implementation.

Multiple advance rulings went against intermediaries. The Authority for Advance Ruling consistently held that intermediary services to foreign clients were subject to domestic GST. Industry bodies, including FIEO, repeatedly demanded relief.

The 56th GST Council Meeting, held on 21 December 2024, finally recommended deletion. The Finance Bill 2026, introduced on 1 February 2025, carries this forward as Clause 141. The Council recognised that the provision contradicted the destination principle that forms the philosophical backbone of GST. India had become a visible outlier among major trading nations. The EU, UK, Australia, Singapore, Canada, and even neighbouring Sri Lanka and Thailand all apply destination-based rules for intermediary services. India's approach penalised its own service exporters while offering no meaningful revenue advantage. How the GST exemption for the export of services now works.

With Section 13(8)(b) deleted, intermediary services fall under the default place-of-supply rule in Section 13(2). The place of supply equals the location of the recipient. When your client is abroad, the place of supply moves outside India.

This unlocks the export of services GST exemption through five conditions under Section 2(6) of the IGST Act. The supplier must be in India. The recipient must be outside India. The place of supply must be outside India. Payment must arrive in convertible foreign exchange. The supplier and recipient must not be establishments of the same entity.

Before Budget 2026, conditions 1, 2, 4, and 5 were usually satisfied for Indian commission agents. Condition three was structurally impossible because Section 13(8)(b) pinned the place of supply inside India. That barrier is now gone.

Once your service qualifies as an export, it becomes a zero-rated supply under Section 16 of the IGST Act. You get two choices. You can supply under a Letter of Undertaking without paying any IGST and claim an input tax credit refund. Or you can pay IGST upfront and claim a full refund later.

The Finance Bill 2026 also removes the ₹1,000 minimum threshold for export refund claims through Clause 139. Small commission agents making low-value transactions benefit directly from this change.

Who benefits and how much they save

The impact ripples across multiple categories of Indian service providers. Export commission agents and trade intermediaries gain the most direct benefit. An agent earning ₹50 lakh annually in foreign commissions saves ₹9 lakh in GST every year. That money either drops to the bottom line or sharpens pricing against global competitors.

IT and ITeS companies providing facilitation, coordination, and support services to overseas clients gain much-needed clarity. Tax authorities had frequently classified their services as intermediary, denying export benefits. The deletion removes the legal foundation for such reclassification. Companies that relocated operations abroad to avoid the 18% embedded cost now have a strong reason to bring those functions back to India.

Freelancers earning commissions from foreign clients who cross the ₹20 lakh registration threshold shift from an 18% cost burden to zero-rated treatment. This is significant for the growing number of Indians working as independent agents on global freelancing platforms. Financial intermediaries and brokers arranging cross-border transactions gain export status on their facilitation fees.

If you earn from overseas clients, read our complete guide to freelancer taxes in India to stay compliant beyond GST.

FIEO President S.C. Ralhan praised Budget 2026-27 as a bold, reform-oriented budget that strengthens the global competitiveness of Indian exports. KPMG India's Mahesh Jaising called the amendment a landmark shift that finally grants export benefits to Indian intermediaries.

The reform also helps resolve approximately ₹3,300 crore in pending GST on export commission litigation accumulated since 2017. However, the amendment applies only going forward. Past disputes remain unresolved unless the government separately issues amnesty provisions.

The reverse charge flip side, you must not ignore

The deletion of Section 13(8)(b) cuts both ways. While Indian intermediaries gain export benefits on outbound services, the change creates a new obligation on inbound intermediary services.

Previously, when an Indian exporter paid commission to an overseas agent, Section 13(8)(b) deemed the place of supply as the foreign agent's location. The service did not qualify as an import into India. No reverse charge mechanism applied. The Authority for Advance Ruling in Uttarakhand confirmed this in M/s Midas Foods in 2020.

After the amendment, the default rule places the supply at the recipient's location — India. Commissions paid to foreign agents now qualify as imports of services. Indian businesses must pay GST under the reverse charge mechanism on these payments. For business-to-business transactions, the recipient can claim input tax credit, making the impact largely tax-neutral.

Still, this means additional compliance. You must self-assess the GST liability, pay it through Form GSTR-3B, and then claim the credit. Factor this into your cash flow planning if you engage overseas commission agents.

Your compliance action plan after the notification

The amendment takes effect from the date the Central Government notifies after the Finance Bill receives Presidential assent. It also requires concurrent adoption by States and Union Territories. Watch for the official notification before changing your billing.

Follow our step-by-step guide to file your LUT for export of services on the GST portal so you are ready on day one.

Once the effective date arrives, take these steps. First, file or renew your Letter of Undertaking on the GST portal using Form GST RFD-11. This lets you export without paying IGST upfront. Second, update your GSTR-1 reporting in Table 6A to reflect zero-rated exports. Third, maintain FIRC or e-FIRA documentation for every foreign exchange receipt. Fourth, verify that all five conditions of Section 2(6) are met for each transaction. Fifth, review contracts with foreign clients and adjust pricing now that the embedded 18% cost disappears.

If you engage overseas agents, prepare for the new reverse charge obligation. Set up processes to self-assess and pay GST on inbound intermediary commissions through your regular returns.

Businesses with existing disputes should note that the amendment does not automatically close pending cases. The deletion of Section 13(8)(b) is prospective. Demand notices, show-cause orders, and appeals from the 2017–2026 period remain live. Consult your tax advisor on whether to continue litigation or explore settlement options if the government introduces amnesty provisions.

Also, review your existing input tax credit position. If you previously paid GST on export commissions and accumulated ITC on business expenses, the transition to zero-rated status changes your refund dynamics. Under the LUT route, you can claim a refund of accumulated ITC. Under the IGST route, the full tax paid gets refunded. Choose the route that best suits your working capital cycle.

The deletion of Section 13(8)(b) aligns India with OECD destination-based taxation norms followed by the EU, UK, Australia, Singapore, and Canada. India was a visible outlier for eight years. That gap is finally closed.

For Indian exporters, commission agents, and service intermediaries earning foreign exchange, this Budget 2026 GST change converts a dead-weight 18% cost into a zero-rated advantage. The structural defect that contradicted the very foundation of destination-based GST has been removed. Make sure your compliance catches up before your next invoice goes out.