GST relief for overseas R&D: Why new place-of-supply rules could boost India’s engineering sector

The GST Council’s recommendation to change the place-of-supply treatment for research, testing, certification and engineering services performed in India on goods belonging to overseas customers could provide relief to Indian engineering and technology companies, industry body Nasscom said.

The proposed change addresses a longstanding concern for businesses providing specialised services to overseas customers, where the physical presence of a prototype, sample or other goods in India could prevent the service from qualifying as an export.

Nasscom welcomed the recommendation, saying it could benefit engineering R&D firms, global capability centres (GCCs) and deep-tech start-ups that provide qualifying research and testing services to overseas customers.

Physical presence of goods creates GST uncertainty

Under the existing treatment highlighted by Nasscom, services such as research, testing, certification and engineering performed in India on goods belonging to overseas customers can face difficulties in qualifying as exports when the customer's prototype or sample is physically present in India.

This has created uncertainty for businesses undertaking specialised work for international clients, particularly where the actual service is performed in India but the customer and underlying business relationship are overseas.

The proposed change in place-of-supply treatment is aimed at addressing this issue and could allow qualifying services to receive export treatment even when the relevant goods remain physically present in India.

Potential boost for engineering and GCC ecosystem

Nasscom said the proposed reform should benefit companies involved in engineering research and development, as well as GCCs and deep-tech start-ups undertaking research and testing work for overseas customers.

The industry body also said the change could help reduce tax uncertainty, litigation and unnecessary working-capital costs for businesses providing such services.

For engineering and technology firms, greater clarity on whether their services qualify as exports could make it easier to structure contracts and assess the GST implications of work performed for overseas customers.

Nasscom said the proposed change could also help India attract more global research and engineering mandates, potentially strengthening the country's position as a location for high-value engineering and R&D work.

Part of wider GST relief for services sector

The recommendation is part of a broader set of GST measures welcomed by Nasscom following the 57th GST Council meeting. The industry body also backed the proposal to allow qualifying services supplied through overseas branches to receive export treatment.

It said Indian companies frequently serve overseas customers through branches abroad, but services supplied from an Indian office to its overseas branch can currently fail to qualify as exports because both entities are establishments of the same person.

Nasscom said removing this restriction could further reduce tax uncertainty and working-capital costs, subject to other export conditions being met.

The industry body also welcomed faster refund processing and the proposed extension of inverted-duty refunds to input services, along with refund eligibility for plant and machinery.

Taken together, Nasscom said the recommendations address longstanding concerns around service exports, input tax credit, refunds and compliance, signalling a more proportionate approach to GST administration.