Indian service exporters breathe a sigh of relief

What constitutes an export of services has always been a bone of contention between the tax authorities and companies. The Union Budget increased the ambit of “taxable service” by introducing new services and expanding the scope of existing services and so has tried to bring some relief to the Indian service exporter. This article seeks to explore the implications of the amendments introduced to the Export of Service Rules, 2005 (Export Rules).

The concept of export of services was introduced in March 1999, by notification no. 6/99-ST of 9 April 1999. It provided a simple condition to constitute export, according to which payments received in India in convertible foreign exchange by a service provider were fully exempt from service tax. Subsequently, the Export Rules were framed and made law in March 2005. When the Export Rules were initially introduced they lay down two conditions to determine what constitutes service exports.

The first condition was that the service should be in relation to an immovable property located outside India; should be performed fully or partly outside India; or the service recipient should be located outside India. The second condition stipulated the receipt of convertible foreign currency in India. Over time there were various amendments to these conditions and the position with regard to the taxation of export of services changed.

Rohit Jain is a partner at Economic Laws Practice where Parth Contractor is an associate. The firm is headquartered in Mumbai, and has offices in New Delhi, Pune and Ahmedabad.