IT Industry Seeks Clarity on Overseas Branches and R&D Services to Improve Competitiveness and Reduce Litigation

India's information technology and IT-enabled services industry has urged the government to address two long-standing Goods and Services Tax (GST) issues affecting services exports, ahead of the GST Council meeting scheduled for October 8.

Industry body Nasscom has highlighted concerns around the GST treatment of services delivered through overseas branches and the tax treatment of research, development, engineering and testing activities carried out in India on prototypes or samples supplied by foreign customers.

The industry believes resolving these issues could improve the competitiveness of Indian service exporters, unlock working capital and reduce prolonged tax disputes.

Overseas Branch Transactions Remain a Key Concern

One of the major issues raised by Nasscom relates to international head office-branch office transactions.

Indian technology companies frequently establish branches or other overseas operations to serve customers in global markets. According to Nasscom, the manner in which a company structures its overseas presence should not, by itself, determine whether a service supplied from India qualifies as an export.

The industry body has argued that differences in GST treatment between services supplied through foreign branches and those delivered through overseas subsidiaries can create additional tax and compliance costs.

Nasscom Vice President and Head of Public Policy Ashish Aggarwal said greater clarity on the issue would help improve competitiveness while releasing working capital currently tied up in tax-related matters.

The uncertainty has also contributed to litigation involving IT-BPM companies, making the issue particularly important for businesses with large international operations.

R&D Work on Overseas Prototypes

The second issue concerns R&D, engineering and testing work undertaken by Indian teams on prototypes or samples supplied by overseas customers.

Under the existing interpretation, services can be treated as supplied in India when the actual work is performed in the country, potentially preventing exporters from receiving export treatment even when the customer is located overseas and the resulting service is ultimately used outside India.

Nasscom has argued that where an Indian company performs specialised R&D or engineering work for a foreign customer and the resulting output is used abroad, the transaction should qualify as an export.

The issue is becoming increasingly relevant as global companies expand engineering, product development and research activities in India.

AI and Technology Expansion Raise Stakes

The industry believes the need for clarity will become more important as artificial intelligence and other emerging technologies expand the range of services that can be delivered remotely from India.

India has developed a strong position in technology-enabled services, engineering, product development and research activities. Global capability centres (GCCs) are also increasingly using Indian teams for sophisticated functions supporting their worldwide operations.

Nasscom has warned that unresolved GST interpretations could create new disputes as the nature of cross-border digital and technology services continues to evolve.

Providing clear rules now could therefore reduce uncertainty for both established exporters and companies setting up new technology operations in India.

Previous GST Clarifications Provide a Framework

Nasscom pointed out that the government has already addressed several areas of uncertainty surrounding services exports.

According to the industry body, GST Council clarifications issued in 2021 helped settle the export treatment of services provided by global capability centres to their overseas group entities. More recently, changes concerning the intermediary provision removed another major source of uncertainty for IT-BPM companies.

The industry is now seeking similar clarity on the two remaining areas before the GST Council.

Nasscom has been engaging with the government on the issue for several years and had submitted a detailed paper to the Ministry of Finance in October 2025. It followed this up with another submission to GST authorities on October 5, 2026, ahead of the Council's meeting.

Working Capital and Compliance Burden

For large IT and technology companies, GST disputes can have a significant impact on working capital.

When transactions are denied export status, companies may face additional tax liabilities, input tax credit reversals and higher compliance costs. Businesses may also need to maintain extensive documentation and engage in prolonged litigation to establish the nature and destination of services.

A clearer framework could allow exporters to determine the tax treatment of international transactions more confidently and reduce the possibility of retrospective disputes.

The industry also expects simpler rules to benefit smaller technology companies that may not have the same resources as large IT firms to manage complex tax proceedings.

Potential Impact on India's Services Export Competitiveness

India's services exports are a major contributor to the country's external earnings and play an important role in supporting the rupee and the broader balance of payments.

The technology industry operates in a highly competitive global environment, with countries competing aggressively to attract technology, engineering, R&D and digital-services mandates.

Nasscom's position is that a predictable GST framework can strengthen India's appeal as a global services hub. Lower compliance costs and reduced litigation would allow companies to allocate more capital toward technology development, hiring and expansion rather than tax-related provisions and disputes.

The issue is also relevant to India's broader objective of expanding high-value services exports beyond traditional IT outsourcing.

GST Council Decision in Focus

The October 8 GST Council meeting could therefore be important for the technology sector, particularly if the government provides specific clarification on the two issues raised by Nasscom.

While any changes would need to balance revenue considerations with the government's objective of maintaining a robust GST framework, industry participants are seeking rules that clearly distinguish genuine exports from domestic supplies.

A favourable clarification could improve tax certainty for companies operating across multiple jurisdictions and potentially reduce the number of disputes reaching appellate authorities and courts.

Market Outlook

Any move to simplify GST treatment for services exports would be positive for India's IT, IT-enabled services, engineering and R&D ecosystem, particularly for companies with significant international operations and overseas branch structures.

In the near term, investors will watch the GST Council's October 8 deliberations for clarity on export treatment, input tax credit implications and international head office-branch transactions. A more predictable framework could improve working-capital efficiency and reduce compliance costs over time.

For the broader economy, clearer GST rules could strengthen India's position as a global technology and services hub, while supporting the expansion of higher-value exports in areas such as AI, engineering, product development, research and global capability centres.