Taking The AAR Ruling Seriously: Indian Tax Authorities Start Knocking On The Doors Of Back Offices 

Officials in the Central Board of Indirect Taxes and Customs (CBITC), working under the Finance Ministry, have begun sending out preliminary notices to companies based out of India that provide back-office services, as reported by Economic Times (ET).

Both the captive units of multinational companies and Indian companies that export offshore services to overseas companies, have been issued such notices.

“Many BPOs have now started receiving preliminary notices from jurisdictional authorities and the AAR ruling is only likely to trigger uncertainty. Denial of export status on BPO services was never intended and an 18 per cent tax imposed on these BPO services will impact exports from the country,” Uday Pimprikar, partner-tax and regulatory services, at EY India.

It was reported on 19 November 2018 that a quasi-judicial body, Authority of Advance Ruling (AAR), had classified ‘back offices’ in India as brokers and not exporters of services, as it was held earlier. Thus, they were liable to pay 18 per cent GST on their operations.

“Nasscom feels this may impact India’s image as a global service provider and could lead to government entities asking for retrospective tax from companies based in India,” said the industry body, NASSCOM (National Association of Software and Services Companies) in response to the ruling.

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