GST and Exports (2026): Foreign Branches, Testing and Repair Work, SEZ Delivery and Faster Refunds
CA Meet Dhrangadhariya 
October 11, 2026
CA Meet Dhrangadhariya October 11, 2026
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8 min readTable of Contents
Last updated: 11 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Some of the most frustrating GST disputes have had nothing to do with whether a transaction was really an export. The customer was abroad, the money came in foreign exchange, and the supply still failed the statutory test on a technicality in the place of supply rules.
The 57th GST Council has gone after three of those technicalities, and paired them with a refund process built to pay exporters faster. The FAQ on export competitiveness of 09/10/2026 explains the first one, and the press release of 08/10/2026 carries the rest.
None of it is law yet. These are amendments to the IGST Act and the CGST Rules that still have to be enacted and notified. If you are mid-dispute on any of these grounds, your case is governed by the provisions as they stand.
This is the change with the clearest beneficiaries, and the FAQ explains the problem better than most official documents manage.
The problem. Where a service requires goods to be made physically available to the supplier in India, clause (a) of section 13(3) of the IGST Act fixes the place of supply as the place of performance, which is India. So the service was treated as supplied in India, and zero rating was denied even though the recipient was abroad and payment came in foreign exchange.
The examples the FAQ gives: testing, repair, research and development, and clinical trials.
The fix. Omitting clause (a) of section 13(3) brings these services under the default rule in section 13(2), so the place of supply becomes the location of the recipient.
For an Indian laboratory testing samples for a foreign pharmaceutical company, a workshop repairing equipment shipped in from abroad, a contract research organisation running trials for an overseas sponsor, this is the difference between a taxable domestic supply and a zero rated export. It is probably the single most valuable item in the whole package for the services sector.
The problem. The definition of “export of services” in section 2(6) carries a condition at sub-clause (v) that the supplier and the recipient must not be merely establishments of a distinct person under Explanation 1 to section 8 of the IGST Act. An Indian company serving a customer through its own overseas branch, or supplying its own foreign office, failed that condition.
The fix. Sub-clause (v) of section 2(6) is to be omitted, so such a supply can qualify as an export of services. The press release says this is meant to facilitate refunds for Indian service providers supplying services to or through their foreign offices and branches.
For Indian firms that serve global clients through a branch structure, and for the IT, consulting and professional services sector generally, this removes a structural disqualification that had nothing to do with whether real export earnings were coming in.
The problem. A manufacturer sells to an overseas buyer, but the buyer asks for delivery into an SEZ or a Free Trade Warehousing Zone in India, for warehousing or further processing. The goods never leave the country at that point, leaving the zero rating position uncertain.
The fix. An explanation is to be inserted in section 16(1) of the IGST Act so that where goods are supplied to an overseas buyer, delivery is made to that buyer in an SEZ or FTWZ, and payment is received in convertible foreign exchange, or in Indian rupees where the RBI permits, the supply is deemed to be a supply of goods to an SEZ or FTWZ.
The press release describes the purpose as providing certainty on the zero rating benefit for Indian manufacturers in exactly this pattern.
A circular is to be issued clarifying the issues around receipt of payment in foreign exchange or in Indian rupees as permissible for the export of goods and services. Payment in rupees where the RBI permits it has been a recurring source of doubt, and a clarification is overdue.
Three changes matter specifically to exporters, and they sit alongside the wider refund reforms we covered in our note on GST refunds.
| Change | What it means for an exporter |
|---|---|
| Rule 89(4)(C) cap removed | The condition valuing zero rated turnover of goods at 1.5 times the value of like goods supplied domestically goes. The official FAQ attributes this directly to the difficulty taxpayers faced in sourcing the value of like goods supplied by a similarly placed supplier |
| Automated provisional refund | 90% of a low risk zero rated claim is sanctioned by the system with no officer involvement, and in phase 2 the full refund is sanctioned automatically for low risk zero rated claims |
| Credit on capital goods enters Net ITC | For zero rated refunds under rule 89(4), credit on capital goods availed on or after 01/04/2027 counts, spread at one sixtieth a month over 60 months |
Your export trail gets verified electronically. In phase 2, the system integrates with ICEGATE for shipping bill and bill of export details, with the RBI’s EDPMS for realisation of export proceeds for services, and with SEZ Online for supplies to SEZ units and developers. Manual checking of those documents goes away, which is both faster and a reason to make sure your filings match those systems exactly.
One exclusion to note. Zero rated supplies made on payment of integrated tax are not affected by the capital goods change, because there is no restriction on using capital goods credit to pay tax on those supplies in the first place.
We can assess whether services you supply to foreign clients qualify as exports under the present place of supply rules and how the proposed omission of section 13(3)(a) would change that, review a foreign branch structure against the proposed removal of the distinct person condition, advise on the zero rating position for goods delivered to an overseas buyer inside an SEZ or FTWZ, prepare and file export refund claims that reconcile with shipping bills and foreign exchange realisation so they stay on the automated track, and take up a pending refund or dispute that turns on any of these provisions. Please reach out to our team and we will be happy to assist.
Because clause (a) of section 13(3) of the IGST Act fixes the place of supply for services requiring goods to be made physically available to the supplier as the place of performance, which is India. The recipient being abroad and paying in foreign exchange did not change that, so zero rating was denied.
Omitting clause (a) of section 13(3) brings them under the default rule in section 13(2), so the place of supply becomes the location of the recipient. The FAQ gives testing, repair, research and development and clinical trials as examples.
That is the intent. Sub-clause (v) of section 2(6) is to be omitted, removing the condition that supplier and recipient must not be establishments of a distinct person under Explanation 1 to section 8, so services supplied to or through foreign offices and branches can qualify.
An explanation is to be inserted in section 16(1) so that where goods are supplied to an overseas buyer but delivered to that buyer in an SEZ or FTWZ, and payment is received in convertible foreign exchange or in rupees where the RBI permits, the supply is deemed to be a supply of goods to an SEZ or FTWZ.
No, once the amendment is made. The condition in rule 89(4)(C) valuing zero rated turnover of goods at 1.5 times the value of like goods supplied domestically is being removed, which the official FAQ attributes to the difficulty taxpayers had in sourcing that comparison.
For a low risk claim, 90% is sanctioned provisionally by the system without an officer, and in phase 2 the full refund on zero rated supplies is sanctioned automatically for low risk claims, with details verified through ICEGATE, EDPMS and SEZ Online.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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