GST 2.0: How the IT and services sector margins could benefit

India’s Goods and Services Tax (GST) regime is set for its biggest restructuring since its launch in 2017. The GST Council has approved a two-tier system that reduces the existing four slabs of 5%, 12%, 18% and 28% to just 5% and 18%. In addition, a 40% rate will apply to a few luxury products such as high-end cars, tobacco and cigarettes, with the cess removed.

The new structure, which came into effect from September 22, 2025, is expected to boost demand in sectors like FMCG, automobiles, cement, consumer discretionary and insurance. Coming just ahead of the festive season, the timing is likely to support economic activity.

The reforms carry particular significance for India’s information technology and services industries. A long-running concern for export-oriented firms, especially Global Capability Centres (GCCs), IT/ITES companies and consulting firms, has been the treatment of ‘intermediary services’ for tax purposes.

As reported by Fortune, the government said, “The Council recommended omission of Clause (b) of Section 13(8) of IGST Act 2017. Accordingly, after the said law amendment, the place of supply for ‘intermediary services’ will be determined as per the default provision under Section 13(2) of the IGST Act, 2017, i.e. the location of the recipient of such services. This will help Indian exporters of such services to claim export benefits.”

Previously, Clause (b) treated intermediary service providers as if they were supplying services in India, even when their clients were based overseas. This often triggered an 18% GST

liability, forcing many firms to lock up working capital and fight lengthy legal battles. Export services are generally GST-free and eligible for input tax credit refunds, but this provision denies those benefits to intermediaries.

Removing the clause is expected to ease compliance burdens and provide much-needed clarity. IT and consulting companies will now be able to claim export status and secure input tax credits, directly improving cash flow and strengthening profit margins.

The changes are also likely to reduce the risk of future litigation. According to NASSCOM, the GST Council’s move is set to ease compliance, free up working capital and cut down on tax disputes for IT-enabled services.

The industry body said that by scrapping Section 13(8)(b) of the IGST Act, the place of supply for intermediary services will be determined by the customer’s location. This will bring the rules in line with global practice.

This change restores export status and refund eligibility for services delivered from India. “This has been a major issue for disputes, litigation and denial of refund of input credit for our industry, especially IT-enabled services.”

Overall, theGST Council’s overhaul signals a decisive step towards a more transparent and growth-friendly tax regime.

For India’s export-oriented IT and services sector, the move removes a critical roadblock to claiming export benefits and strengthens its global competitiveness.