In a landmark move to boost India’s global competitiveness in financial and business services, the Union Budget 2026–27, presented by Finance Minister Nirmala Sitharaman, has proposed a key amendment to the Integrated Goods and Services Tax (IGST) Act, 2017, that removes a long-standing barrier for intermediary service providers.
The Finance Bill 2026 seeks to omit clause (b) of sub-section (8) of Section 13 of the IGST Act. This clause previously deemed the place of supply for “intermediary services”—such as those provided by stock brokers, commission agents, and similar facilitators—as the location of the supplier (i.e., India). As a result, Indian intermediaries serving overseas clients, including Foreign Portfolio Investors (FPIs), faced an 18% GST liability, even on cross-border transactions.
With the deletion of this provision, the place of supply will now follow the default rule under Section 13(2) of the IGST Act: the location of the recipient. For services rendered by Indian stock brokers to FPIs based abroad, the place of supply shifts outside India, qualifying these as exports of services—provided payments are received in convertible foreign exchange or permitted Indian rupees.
This effectively results in zero GST on eligible brokerage and intermediary services to FPIs, eliminating the previous 18% tax burden that had eroded margins and reduced competitiveness for Indian brokers in the global market.
The reform addresses a contentious issue that had sparked years of debate, litigation, and disputes worth thousands of crores. Tax experts and industry stakeholders view it as one of the most significant indirect tax changes in recent times, aligning India’s GST framework more closely with destination-based taxation principles seen globally.
Key Positives for FPIs in the Budget
Zero GST on brokerage services from Indian intermediaries, making it cheaper and more attractive for FPIs to engage with Indian brokers and access Indian capital markets.
Enhanced competitiveness for Indian financial intermediaries, enabling more aggressive pricing and service offerings to international clients.
Increased FPI participation expected in Indian equities and other assets, as reduced compliance costs and tax friction lower entry barriers.
Improved liquidity and market depth in Indian capital markets through greater foreign investor involvement.
Easier access to export benefits, including input tax credit refunds or zero-rating, which eases cash flow pressures for service providers.
The change forms part of broader GST reforms in the Budget aimed at simplifying compliance, clarifying refund processes, and reducing operational hurdles for businesses in global trade. By resolving this “intermediary trap,” the government is positioning India as a more attractive hub for financial services exports, back-office operations, fintech, and platform-based intermediation—delivering a quiet but powerful win for the services economy.
Suresh Swamy, Partner, Price Waterhouse & Co. LLP says it is a much-needed change that resolves a long-standing anomaly in the GST place of supply rules for intermediaries.
“Under the current regime, Indian stock brokers providing brokerage services to FPIs located overseas have been unfairly burdened with 18 percent GST, simply because the place of supply was tied to the supplier’s location in India. By omitting the specific intermediary provision in Section 13(8) of the IGST Act, the Budget aligns these services with the default rule—placing the supply at the recipient’s location, which is outside India for FPIs. This effectively classifies such brokerage services as exports of services, making them zero-rated (Nil GST), subject to the standard export conditions like receipt of payment in convertible foreign exchange or RBI-permitted Indian rupees under Section 2(6) of the IGST Act.”
“The move will significantly enhance the competitiveness of Indian brokers in attracting and serving global investors, reduce compliance friction, ease cash flows through export benefits, and ultimately boost FPI participation and liquidity in Indian capital markets. It brings India’s GST framework closer to a true destination-based taxation model, addressing years of industry concerns and potential litigation,” Swamy said.