Cross-border services and intercompany transactions are the operational backbone of Indian subsidiaries and Global Capability Centres (GCCs). The compliance landscape was re-architected by the Finance Act, 2026 and a series of GST Council valuation clarifications. How these transactions are structured determines whether an entity enjoys zero-rated export benefits or faces domestic tax and blocked input tax credit.
Key facts & figures
An Indian subsidiary serving its overseas parent can treat the supply as a zero-rated export under Section 2(6) of the IGST Act if: the supplier is in India, the recipient is abroad, the place of supply is abroad, and payment is in convertible foreign exchange. Exporters can supply without paying IGST by filing a Letter of Undertaking (LUT) and claiming refunds of unutilised input tax credit.
Related-party transactions carry valuation complexity. Under Schedule I of the CGST Act, supplies between related persons (a foreign parent and Indian subsidiary) are taxable even without consideration. The value of a corporate guarantee given on behalf of a related party is fixed at 1% of the guaranteed amount per year, or the actual consideration, whichever is higher. Supply of OIDAR services to non-taxable recipients in India requires the foreign supplier to register and discharge tax.
Recent changes
The Finance Act 2026 resolved a decade of litigation on 'intermediary services'. Effective 30 March 2026, Section 13(8)(b) of the IGST Act was omitted. It had deemed the place of supply for agents/brokers to be the supplier's location (India), attracting 18% IGST and denying export benefits. With its removal, intermediary services revert to the default rule (Section 13(2)) — place of supply is the recipient's location. Indian subsidiaries providing sourcing, marketing, or agent services to foreign parents can now qualify as exporters; conversely, receiving such services from a foreign broker is now an import, attracting IGST under reverse charge.
On expat secondment, CBIC Circular No. 210/4/2024 applied the second proviso to Rule 28: where the Indian subsidiary is eligible for full input tax credit, the invoice value can be taken as open market value — and if no invoice is issued, the value can be deemed nil, neutralising the GST liability. E-invoicing remains mandatory for B2B supplies above the notified turnover thresholds.
Common pitfalls
- The intermediary amendment took effect on 30 March 2026 (Presidential assent). Invoices before that date remain domestically taxable; those on or after are exports — mixing them in FY 2025-26 closing books creates reconciliation mismatches.
- The amendment had no saving clause for past litigation — authorities may still pursue pending notices for earlier periods.
- Assuming an APA under transfer pricing clears customs valuation. Customs (SVB) rules separately investigate royalties and licence fees as a condition of sale, independent of the income-tax arm's-length price.
Frequently asked questions
If our subsidiary does lead generation for our UK parent, is it 18% GST?
Before 30 March 2026 it was a domestic supply at 18%. After the Finance Act 2026, the place of supply shifts to the UK — provided the fee is received in foreign exchange, it is a zero-rated export.
How is a 5-year corporate guarantee from our US parent taxed?
Under Rule 28(2) the value is deemed 1% of the guaranteed amount per year. The Indian subsidiary pays GST under reverse charge, proportionately over the guarantee period.
We pay our foreign parent for seconded engineers — do we owe GST?
Historically litigated, but under the second proviso to Rule 28 (and Circular 210/2024), if the subsidiary is eligible for full ITC the invoice value can be the open market value; if self-invoiced at nil, the liability is neutralised.
Is e-invoicing applicable to export invoices to our parent?
Yes. If the subsidiary crosses the e-invoicing turnover threshold, it must generate an IRN for export invoices, just like domestic B2B supplies.
This article is for general information only and reflects our understanding of the rules at the time of writing. Tax and regulatory provisions change frequently and some references may be subject to further notification. It is not professional advice — please verify against the latest provisions, or consult a professional, before acting.