GST Council Weighs Export Reforms to Strengthen India’s Services and Manufacturing Sectors

New Delhi, Oct 6: The Goods and Services Tax Council is preparing to consider a series of changes aimed at making India’s export oriented businesses more competitive, with proposals covering overseas contract manufacturing, services exports, intellectual property and refunds of accumulated input tax credit.

The discussions come ahead of the Council’s meetings scheduled for October 7 and 8, where several measures intended to simplify tax treatment and address long-standing compliance issues are expected to receive attention. The proposed changes could have implications for manufacturers, information technology companies, financial services providers, engineering firms and other businesses that operate across international markets.

Among the significant proposals is a change that could allow work carried out in India for an overseas customer to receive export treatment even when the finished goods remain within the country. The proposal is designed to address an anomaly in existing place of supply rules that has affected contract manufacturing arrangements involving foreign companies.

Under the proposed framework, such transactions could qualify as exports when consideration is received in foreign exchange, or in rupees where permitted under Reserve Bank of India rules.

Focus on overseas manufacturing

The proposed treatment could be particularly relevant for India’s contract manufacturing sector. International companies increasingly use Indian manufacturers for processing, assembly and other specialised activities without necessarily moving finished products outside the country.

Existing tax treatment can create complications when the foreign customer owns the goods but the final products remain in India for further processing or other purposes. The proposed adjustment seeks to bring the tax treatment more closely in line with the commercial structure of such transactions.

Industry representatives have argued that resolving the place-of-supply issue could reduce tax cascading and improve India’s competitiveness as a manufacturing destination.

The proposal is therefore broader than a technical tax amendment. For exporters, predictable GST treatment can affect pricing, working capital and the attractiveness of locating production or processing activities in India.

Services exporters seek simpler rules

The Council is also expected to examine changes affecting India’s large services-export industry.

Proposed revisions are aimed at making GST compliance easier for sectors such as information technology, engineering, consulting, financial services and research. India’s services exports reached $421.3 billion in 2025-26, accounting for 48.8 per cent of total exports, according to the Financial Express.

One proposal seeks to remove a requirement under which the supplier and recipient of certain services cannot be treated as the same entity. This has created complications for Indian businesses operating through foreign branches or related overseas structures.

Changes to place-of-supply provisions are also being considered for services performed in India on goods belonging to foreign customers. Under the proposed approach, the location of the customer could become more important than the place where the work is physically carried out when determining whether the transaction qualifies as an export.

If adopted, the changes could simplify tax treatment for businesses involved in cross-border repair, processing, engineering and other specialised services.

Faster refunds could release working capital

Another important issue before the Council is the refund of unutilised input tax credit under inverted-duty structures.

An inverted duty structure occurs when the GST rate on inputs is higher than the rate applicable to the finished product. Businesses can consequently accumulate input tax credit that cannot be fully utilised against their output tax liability.

The Council is considering separate implementation timelines for refunds related to capital goods and input services. The proposal under discussion would potentially introduce relief for input-service credits sooner, while refunds connected with capital goods could be implemented from April 1, 2027.

For companies carrying large amounts of blocked credit, such a change could have a direct impact on liquidity.

Working capital is particularly important for businesses that operate with long production cycles or make substantial investments in machinery and equipment. When tax credit remains locked up for extended periods, companies may need additional borrowing to finance routine operations.

Industry representatives have also argued that relief should cover eligible credits accumulated from earlier GST changes rather than applying only to new purchases.

Changes proposed for contract manufacturing

The export proposal for overseas contract manufacturing is part of a broader attempt to make India’s indirect tax system more compatible with modern supply chains.

Companies increasingly operate through networks in which design, ownership, processing, warehousing and final sales take place in different jurisdictions. Traditional tax rules can struggle to accommodate such structures when they are based heavily on the physical location of goods.

The proposed GST change would seek to recognise the commercial relationship between an Indian service provider and its overseas customer while ensuring that export benefits are available where the transaction meets the required conditions.

Experts cited by Business Standard said changes to the place-of-supply framework could help remove tax cascading in business models involving free trade warehousing zones and special economic zones.

Recycling sector also on agenda

The Council is also considering measures concerning waste and scrap transactions.

Under the proposal, registered dealers selling plastic waste, electronic waste, scrap tyres or used cooking oil to other registered dealers could face a 2 per cent tax deducted at source. Where the seller is unregistered, the buyer would be responsible for the tax under the proposed mechanism.

A similar system already applies to metal scrap.

The objective is to increase tax visibility as recyclable material moves into the organised economy. Bringing more transactions into the formal system could also create a more level playing field between compliant businesses and informal operators.

For recycling companies, clearer tax procedures could reduce uncertainty around procurement and documentation while giving authorities greater visibility over transactions.

Intellectual property classification

Another issue expected to receive attention is the GST treatment of outright intellectual property sales.

The proposed position would treat an outright sale of intellectual property as a service, similar to the existing treatment of licensing arrangements. Such clarification could settle a long-running question for businesses involved in technology, patents, brands and other intangible assets.

Clear classification matters because the GST treatment of a transaction can affect pricing, tax liability and the ability of companies to claim related input credits.

For technology-driven companies and businesses engaged in intellectual-property transactions, greater certainty could make cross-border arrangements easier to structure.

Broader push for export competitiveness

The proposed measures come as India seeks to strengthen its position in global trade and expand the role of services and manufacturing in the economy.

Tax administration has become increasingly important for exporters because even when the final tax burden on exports is intended to be neutral, procedural delays and blocked credits can increase the cost of doing business.

The proposed changes could therefore have effects beyond GST compliance. Faster refunds can improve cash flows, clearer export definitions can reduce disputes, and more predictable place-of-supply rules can make it easier for companies to structure international operations.

Businesses will nevertheless be watching the final decisions closely because several proposals require legislative changes or further administrative steps before they can become operational. The proposed refunds for capital goods and input services, for example, would require changes to the legal framework governing GST refunds.

The Council’s October deliberations are consequently expected to focus not only on tax rates but also on the mechanics of India’s indirect tax system.

If the proposed measures are approved and implemented effectively, exporters could gain greater certainty over GST treatment while businesses holding large amounts of unused input credit could receive relief from working-capital constraints.

The outcome of the meetings will provide a clearer indication of how the government intends to refine GST rules after the broader rate rationalisation measures introduced in the previous year. For businesses operating in India’s increasingly integrated manufacturing and services economy, the emphasis is now shifting from headline tax rates towards smoother compliance, quicker refunds and clearer rules for international transactions.