THE ULTIMATE GUIDE TO SURCHARGE PLANNING IN PARTNERSHIP FIRMS, LLPs & COMPANIES (AY 2025–26)

By CA Surekha S Ahuja  

How strategic partner remuneration, firm profit allocation & entity choice can reduce surcharge — with 3-partner examples and clear tax outcomes

When business profits cross ₹5 crore… ₹50 crore… and in many cases ₹100+ crore, one question becomes a goldmine of tax optimisation:

“Can we reduce our surcharge by shifting income between the firm and the partners?”

Most firms either pay full 31.2–31.5% tax at the firm level (30% + 10% surcharge + 4% HEC)
OR
push too much income to partners, triggering 39% tax in their hands (new regime highest slab with capped 25% surcharge).

The truth is:

There is a sweet spot — but only if you understand the surcharge trigger points.

This guide explains that sweet spot with simple examples, law references, charts, and a 3-partner model.

First Principles — How the Law Creates Planning Opportunities

A. Firms & LLPs (same taxation)

• Tax rate → 30%

• Surcharge → 10% (flat; no income-based variations)

• Health & education cess → 4%

→ Effective rate: approx. 31.2–31.5% irrespective of profit level
Whether the firm earns 50 lakhs or 500 crores — rate is the same.

B. Partners (Individuals) – New Regime

• Slab rate up to 30%

• Surcharge capped at 25% (Finance Act 2023 for new regime)

• HEC 4%

→ Effective maximum rate: approx. 39%

C. Companies (Private Limited)

• Base rate → 22% (115BAA) or 30% (regular)

• Surcharge varies:

  • 7% if income > ₹1 crore

  • 12% if income > ₹10 crore

• HEC 4%

→ Effective rate under 115BAA roughly 25.17%.

Bottom-line Difference

Entity	Effective Tax Rate	Surcharge Logic
Firm / LLP	31.2–31.5%	Constant 10%
Partner (Individual)	Up to 39%	Capped 25%
Company (115BAA)	25.17%	7% or 12%

This creates a huge planning avenue:
Shift income to the place with the cheaper surcharge.

The Most Important Question

Should Profit Sit in the Firm or Flow to Partners?

The answer depends on:

(A) Partner income already above ₹2 crore?

→ Then remuneration pushes them into surcharge at max rate → 39%.
→ Keeping income in the firm saves tax.

(B) Firm profit extremely high (₹20–₹200 crore)?

→ Firm will always pay only 10% surcharge, whereas partners reach 25% surcharge.

The rule of thumb

If partner’s post-remuneration income exceeds ₹2 crore, avoid giving more salary.
If partner is below ₹1 crore income, remuneration may reduce total tax.

The 3-Partner High-Profit Example (₹50 crore profit)

Before remuneration: ₹50 crore profit

Allowed remuneration (12(a) limits) easily exceeds what we plan to pay, so assume full eligibility.

We test 4 levels of remuneration to see the tax impact.

Scenario 1: No Remuneration Given

Particulars	Amount
Firm Profit	₹50 crore
Tax @ 31.5%	₹15.75 crore
Partner income	Nil
Total Tax Outflow	₹15.75 crore

Scenario 2: Low Remuneration – ₹1 crore each (Total ₹3 crore)

Particulars	Amount
Taxable profit in firm	₹47 crore
Firm tax @31.5%	₹14.80 crore
Partner income	₹1 crore each
Partner tax @30% slab + 25% surcharge	~₹0.39 crore each
Total partner tax	₹1.17 crore
Total Tax Outflow	₹15.97 crore

Tax increased.
Reason: partners pay 39% on their income, more than firm’s 31.5%.

Scenario 3: Medium remuneration – ₹2 crore each (₹6 crore total)

Particulars	Amount
Firm taxable profit	₹44 crore
Firm tax	₹13.86 crore
Partner tax	₹0.78 crore each
Total partner tax	₹2.34 crore
Total Tax Outflow	₹16.20 crore

Worse.

Scenario 4: High remuneration – ₹3 crore each (₹9 crore total)

Particulars	Amount
Firm taxable profit	₹41 crore
Firm tax	₹12.92 crore
Partner tax	₹1.17 crore each
Total partner tax	₹3.51 crore
Total Tax Outflow	₹16.43 crore

Worst of all.

The Surprising Outcome

When firm profits are very high (₹50 crore, ₹100 crore, etc.):

Giving higher remuneration increases total tax because partners cross surcharge thresholds early.

Best choice:

Keep maximum profit in the firm and pay tax at 31.5%.

Why This Happens – The Surcharge Trigger Difference

Income Level	Firm	Partner
₹1 crore	Same tax rate	30% + 15% surcharge
₹2 crore	Same	30% + 25% surcharge
₹5 crore	Same	30% + 25% surcharge
₹50 crore	Same	30% + 25% surcharge

Partners hit the surcharge ceiling early.
Firms never change surcharge at all.

LLP vs Partnership Firm: Any Difference?

Taxation: Same

• Section 184, 185, 40(b) apply equally

• Rate 30% + 10% surcharge + 4% cess

• Remuneration rules identical

Governance Difference (non-tax)

• LLP gives limited liability

• Better for outside investment and PE funding

• Easier compliance than company

• More flexible in profit-sharing

Tax optimisation → Exactly same outcome as partnership firm

Company vs Firm/LLP – When a Company Wins

At very high profit levels, a company under section 115BAA:

• Pays 22% + 10% surcharge + 4% cess = 25.17%

• No partner-level tax

• No remuneration deduction limit restrictions

• Dividends taxed @ 20.8% (after 2020 DDT abolition)

When Company is Better

• If partners have high personal income (>₹2 crore)

• If company profits are consistently above ₹10–20 crore

• If profits are reinvested rather than withdrawn

• If investor entry or ESOP pool is needed

 The Final Planning Matrix

A. For High Profits (₹20–₹200 crore)

Action	Result
Keep profits in firm/LLP	✔ Lowest tax (31.5%)
Avoid heavy remuneration	✔ Prevent 39% partner tax
Shift withdrawals to loans/dividend-like structures	✔ Savings

B. For Medium Profits (₹5–₹20 crore)

| If partners’ other income < ₹1 crore | Moderate remuneration works |
| If partners’ other income already high | Keep income in firm |

C. For Low Profits (<₹5 crore)

Action	Result
Higher remuneration	✔ May reduce tax
Profit retention in firm	✔ Neutral

Who Should Hold the Profit?

If partner total income after remuneration > ₹2 crore

➡ Keep profit in firm
(because partner surcharge hits 25%)

If partner income < ₹1 crore

➡ Remuneration is tax-neutral or beneficial

If partner income 1–2 crore

➡ Plan carefully — small shifts change surcharge drastically

Conclusion – The One Rule That Matters Most

A firm/LLP pays a flat 10% surcharge — partners pay 25%.
When profits are large, keeping income in the firm wins.

THE DEFINITIVE PROFESSIONAL GUIDE TO SURCHARGE FOR AY 2025–26

 By CA Surekha S Ahuja

Statutory Foundation — Why Surcharge Applies on “Total Income” and Not “Taxable Income”

Meaning of Total Income: Section 2(45)

Total income means the total amount of income referred to in section 5, computed under all heads of income, before applying:

• Chapter III exemptions

• Chapter VI-A deductions

• Rebates such as section 87A

This definition has never been amended and continues to be the legal basis for surcharge determination up to AY 2025–26.

Judicial Interpretation

Courts have consistently held that:

• Exemptions reduce tax liability, not income slabs or surcharge thresholds.

• Surcharge is calculated on total income before exemptions.

This principle has been reinforced in decisions such as:

• Kotak Mahindra Primus Ltd. (Bombay High Court)

• K. Raasi (Madras High Court)

Thus, total income for surcharge = income computed under sections 14–59 before granting any exemptions under Chapter III.

Finance Act Surcharge Triggers for AY 2025–26

Individuals / HUFs / AOPs

Total Income	Surcharge	Comment
Up to ₹50 lakh	Nil	—
₹50 lakh – ₹1 crore	10 percent	Triggered even if threshold is crossed due to exempt long-term capital gain
₹1 crore – ₹2 crore	15 percent	LTCG surcharge capped at 15 percent
₹2 crore – ₹5 crore	25 percent	LTCG surcharge continues to be capped
Above ₹5 crore	25 percent (new regime) or 37 percent (old regime)	LTCG surcharge always capped at 15 percent

Companies and LLPs

• Domestic company:

  • 7 percent if total income exceeds ₹1 crore

  • 12 percent if total income exceeds ₹10 crore

• LLPs and Firms:

  • 12 percent above ₹1 crore

There is no surcharge cap on capital gains for corporates or LLPs.

Inclusion–Exclusion Rules for Surcharge Threshold

Included in Total Income (and therefore push the assessee into surcharge)

• Exempt long-term capital gain

• Partner’s exempt share under section 10(2A)

• Agricultural income (for rate purposes)

• Special rate gains under sections 111A, 112, 112A

• Foreign income before applying DTAA relief

Excluded from Total Income (do not affect surcharge applicability)

• Deductions under Chapter VI-A

• Rebates under sections 87A and 89

• Carried forward losses

• Rebate-linked incomes under section 87A

Practical Insight

Even one rupee above ₹50 lakh — even if it is purely exempt income — triggers surcharge.

Software Confusion Explained — Why Older Utilities Ignored Exempt LTCG

Before AY 2019–20, ITR utilities displayed “Taxable Total Income”, not total income under section 2(45).

Because exempt LTCG had no tax effect, the display did not add it to the “total income” field.

Legally, however:

• Exempt income was always part of total income

• Exempt income always influenced surcharge

CBDT corrected the display and schema from AY 2019–20 onwards to match the law.

Thus, the change was a software/UI correction, not a change in tax policy.

Illustration — Individual with Exempt LTCG (Most Important Example)

Facts

• Salary income: ₹45 lakh

• Exempt LTCG: ₹7 lakh

• Taxable income: ₹45 lakh

• Total income for surcharge: ₹52 lakh

Computation

• Tax under new regime: ₹4,28,400

• Surcharge @10 percent: ₹42,840

• Pre-relief tax: ₹4,71,240

Since income above ₹50 lakh is only ₹2 lakh, marginal relief applies.

• Maximum tax allowable after relief: ₹2 lakh

• Relief amount: ₹4,71,240 − ₹2 lakh = ₹2,71,240

• Tax after relief: ₹2 lakh

• Cess @4 percent: ₹8,000

Final tax payable: ₹2,08,000

This example clearly demonstrates:

• Exempt LTCG increases total income

• Surcharge becomes applicable

• Marginal relief prevents excessive burden

Illustration — Domestic Company with Capital Gains

• Business income: ₹11 crore

• LTCG: ₹1 crore

• Total income: ₹12 crore

Tax Calculation

• Income tax @25 percent: ₹3 crore

• Surcharge @12 percent: ₹36 lakh

• Cess @4 percent: ₹12.24 lakh

Total tax payable: ₹3,48,24,000

Closing Perspective — What Professionals Must Take Away

Surcharge is no longer a mechanical add-on.
It is a rate-shifting, threshold-sensitive, and computation-altering lever that influences tax outcomes for individuals, promoters, funds, corporates, LLPs, and cross-border taxpayers alike.

Three principles ultimately define correct surcharge planning:

1. Total income — not taxable income — drives surcharge exposure.
Exempt LTCG, partner’s exempt share, agricultural income for rate purposes, and special-rate incomes all push the taxpayer across surcharge bands, even if not taxable.

2. Marginal relief must always be checked — and never assumed.
From salaried individuals with exempt gains to HNIs with mixed incomes, incorrect relief computation remains one of the highest scrutiny triggers in CASS.

3. Structuring decisions matter far more today.
Capital gain timing, bonus/redemption sequencing, business restructuring, partner remuneration design, and dividend distribution policy all create real surcharge arbitrage when executed consciously.

Strategic GST Planning & Agreement Safeguards for Residential Leasing, Co-Living, and Student Housing

By CA Surekha S. Ahuja

Reference: Supreme Court judgment, State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish, 04.12.2025

The Supreme Court’s 2025 ruling provides clarity that residential premises leased to aggregators, co-living operators, or corporates remain GST-exempt under Entry 13, Notification 9/2017-IT(R), provided the ultimate use is residential.

This professional advisory outlines strategic business model adjustments, lease agreement updates, service segregation practices, and operational safeguards to lawfully preserve GST exemption, avoid defaults, and remain scrutiny-ready.

Strategic Business Model Alignment

Focus Area	Recommended Action	Professional Implication
Property Segmentation	Separate residential (exempt) and commercial/hospitality (taxable) properties; consider distinct legal entities or cost centers	Ensures correct GST classification; audit-ready reporting
Revenue Segregation	Exempt: long-term residential rent; Taxable: ancillary services (mess, housekeeping, laundry, utilities); avoid bundling	Prevents inadvertent GST liability on exempt rent
Occupancy Verification	Maintain occupancy logs, tenant certifications, sub-leasing records; conduct quarterly internal audits	Supports SC-compliant residential use; strengthens scrutiny defense
Aggregator/Corporate Lease	Sub-leasing allowed only for residential purposes; define reporting obligations and audit rights	Preserves exemption eligibility despite corporate tenancy

Lease Agreement Clause Differentiators

Clause	Updated Wording / Differentiator	Rationale / Safeguard
Purpose / Use	“Premises shall be used exclusively for long-term residential accommodation, including student housing, co-living, or employee residences. Commercial or non-residential use is strictly prohibited.”	Ensures SC-compliant residential use
Sub-Leasing	“Sub-leasing permitted solely for residential purposes. Lessor may inspect sub-leasing records quarterly. Commercial or transient sub-leasing constitutes material breach.”	Maintains GST exemption even with intermediaries
Occupancy / Duration	“Minimum stay of three months. Daily/weekly occupancy prohibited. Lessor may verify occupancy logs quarterly.”	Differentiates from taxable hospitality services
Service Segregation	“Rent pertains exclusively to residential lease. Ancillary services (mess, housekeeping, laundry, utilities) shall be invoiced separately and are taxable. Bundling of taxable services with rent is prohibited. Allocation methodology to be applied if partial services included.”	Ensures audit-ready invoicing and prevents GST on exempt rent
Exemption & Legal Reference	“Lease qualifies for GST exemption under Entry 13, Notification 9/2017-IT(R), as affirmed by SC judgment dated 04.12.2025. Exemption is based on functional residential use, irrespective of lessee identity.”	Provides legal backing for scrutiny
Termination & Breach	“Material breaches include non-residential use, short-term occupancy (<3 months), bundling of taxable services, or sub-leasing violations. Remedies: termination, damages, invoice adjustment, indemnity claims.”	Protects lessor and operational compliance
Compliance & Reporting	“Tenant shall certify end-use quarterly. Lessor may inspect occupancy logs, sub-leasing agreements, and ancillary service invoicing. Internal audits to reconcile agreements, occupancy, and GST returns conducted quarterly.”	Ensures continued GST exemption eligibility

Bundled vs. Unbundled Services Matrix

Scenario	GST Treatment	Advisory Notes
Rent only	Exempt	Maintain minimum stay and occupancy logs
Rent + ancillary services bundled	Taxable on services portion	Must unbundle and invoice separately; define in lease
Utilities included in rent	Partial risk	Allocate or clarify as exempt in agreement
Commercial / hospitality operations	Fully taxable	Consider separate legal entity or cost center
Short-term stays (<3 months)	Fully taxable	Exclude from residential leasing operations

Procedural & Operational Safeguards

Area	Key Safeguard / Advisory
GST Returns	Report exempt rent as nil-rated; taxable services separately invoiced and returned
Documentation	Maintain lease agreements, sub-leases, occupancy logs, payment receipts, bank statements; historical occupancy logs for audit defense
Internal Audit	Quarterly verification of agreements, occupancy, invoicing, and GST returns
Revenue & Entity Segregation	Separate ledgers for exempt rent vs taxable services; split invoices if bundling unavoidable
Tenant / Aggregator Controls	Reporting obligations, audit rights, compliance indemnity clauses
Compliance Evidence	Periodic tenant certifications, occupancy logs, sub-leasing documentation

Risk Mitigation & Caution Points

Risk	Preventive Action / Clause
Short-term occupancy	Minimum stay clauses; occupancy monitoring & certification
Bundled services	Explicit prohibition in agreement; separate invoicing
Mixed-use properties	Separate entities or cost centers; segregate GST returns
Aggregator/corporate tenant non-compliance	Indemnity clause; reporting obligations; inspection rights
Documentation gaps	Comprehensive lease, sub-lease, occupancy, and payment record maintenance
Scrutiny challenges	Explicitly reference SC judgment, High Court rulings, and Entry 13
Operational misalignment	Internal audits to reconcile agreements, occupancy, invoicing, GST returns

Key Takeaways

1. GST exemption depends on functional residential use, not the legal identity of the lessee.

2. Precise clause drafting is critical: sub-leasing, occupancy, service segregation, breach triggers.

3. Operational and legal segregation between residential and commercial activities is mandatory.

4. Separate invoicing for taxable and exempt components prevents inadvertent GST liability.

5. Quarterly verification, tenant certification, and internal audits are essential safeguards.

6. Explicit breach remedies protect lessors and maintain compliance under scrutiny.

Conclusion

Integrating business model alignment, updated audit-proof lease clauses, service unbundling, and operational safeguards ensures:

• Lawful GST exemption for residential leasing and co-living operations

• Minimized default and scrutiny risk

• Professional, audit-ready documentation and operational clarity for aggregators, corporate tenants, and property owners

This forms a complete professional framework for GST-compliant residential leasing, student housing, and co-living operations.

GST on Leasing to Hostels/PGs: Supreme Court Brings Final Clarity

 By CA Surekha S Ahuja

Critical Analysis, Taxability Differentiators & Judicial Logic
(Judgment dated 04.12.2025 — State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish)

The Supreme Court’s 2025 ruling is now the definitive authority on whether leasing residential premises to aggregators, student housing operators, or co-living companies is exempt from GST.
Short answer: Yes, it is exempt—provided the ultimate use is residential.

This judgment transforms tax certainty for the hostel/PG, co-living, student housing, and corporate rental ecosystem.

Facts of the Case—Simplified for Practical Understanding

Aspect	Details
Nature of property	Residential building with 42 rooms
Lessor	Individual owners (co-owners)
Lessee	DTwelve Spaces Pvt. Ltd., an aggregator providing long-stay accommodation
End use	Rooms sub-let as hostel/PG for 3–12 months to students & working professionals
Claim made	Exemption under Entry 13 of Notif. 9/2017-IT(R) — renting of residential dwelling for use as residence
AAR/AAAR	Denied exemption — said lessee (a company) was not residing
High Court	Allowed exemption
Supreme Court	Confirmed exemption in favour of assessee

Gist of the Supreme Court Ruling

Residential premises rented to an intermediary (company/aggregator/firm) for providing long-stay residential use remain exempt from GST.
The identity or legal form of the lessee is irrelevant.
What matters is the nature of the property and the ultimate use.

Professional Basis of Taxability vs. Exemption

GST exemption under Entry 13 applies only when both conditions are satisfied:

Residential Character of the Property

A “residential dwelling” is not defined in GST law.
Thus, courts rely on:

• Common parlance

• Service Tax Education Guide

• Judicial precedents

Residential dwelling = a place fit for long-term residence with living facilities.
Long-term hostels/PGs qualify.

Actual Residential Use

The Supreme Court clarified:
“Use as residence” refers to functional end-use — not who the lessee is.
Even if a company takes the lease and sublets it, the property is still “used as residence.”

This overrules AAAR’s interpretation that the lessee must personally reside.

Taxability Differentiators — A Clear Practitioner Matrix

Scenario	Property Type	End Use	GST Treatment	Why
Residential property leased to aggregator → used for long-term hostel/PG	Residential	Residential	Exempt	SC: End-use is residential; lessee identity irrelevant
Residential property leased to company → employee long-stay residence	Residential	Residential	Exempt	“Use as residence” test satisfied
Residential property leased for corporate guest house / short-term stays	Residential	Temporary/commercial	Taxable (18%)	Guest houses not treated as residential dwelling
PG/Hostel with transient occupancy (daily/weekly turnover)	Mixed/Commercial	Transient	Taxable	Treated like lodging/hotel services
Property constructed as hostel/commercial lodging	Non-residential	Hostel	Taxable	Nature of property itself is commercial
Serviced apartments with hotel-like amenities	Residential	Commercial hospitality	Taxable	Falls under accommodation services

This matrix is now a definitive compliance tool.

Court’s Reasoning — Analytical Breakdown

Residential Dwelling Interpreted through Common Parlance

Since GST law gives no definition, the Court relied on broad, ordinary meaning.
Long-term hostels/PGs match the attributes of residential dwellings.
They are clearly distinct from:

• Hotels

• Motels

• Lodges

• Guest houses

• Commercial accommodation

The Court stressed: design, duration, and functionality determine residential nature.

Lessee’s Identity Is Not a Condition in the Exemption

The Revenue incorrectly argued:
“Because the lessee is a company, exemption fails.”

The Court rejected this as legally baseless:

• Entry 13 does not require the lessee to reside.

• GST exemption is based on use, not who uses.

This interpretation aligns with principles of beneficial interpretation, applied especially where purpose is to protect residential housing from tax burdens.

Purposive Interpretation Overrides Rigid Technicality

The Supreme Court reiterated that exemptions connected to basic residential use must be construed liberally once conditions are met.

Charging GST merely because a company is the tenant would distort the very objective of the exemption.

Judicial Support for the Ruling

This decision harmonises with:

Earlier Service Tax Position

• Residential dwelling renting was exempt

• Hostels/PGs with long-term use treated as residential dwellings

• Education Guide (2012) supports this understanding

High Court Judgments

• Karnataka High Court in the same matter

• Gujarat High Court (hostel/PG with long-stay residents = residential dwelling)

Global VAT Practices

• EU & UK VAT: Long-term residential renting is exempt

• Only short-term lodging is taxable
  The Supreme Court’s logic aligns with international jurisprudence.

Final Taxability Position After Supreme Court Judgment

GST Exempt When

• The property is a residential dwelling

• The end-use is residential (long-term living)

• The tenant may be an individual, partnership, LLP, company, aggregator

• Subleasing ultimately results in residence (hostel/PG/co-living for long stays)

GST Applies When

• The building is commercial in nature

• Use is temporary, transient, or hotel-like

• Amenities convert it into hospitality service

• The property is designed as a hostel/lodge from inception

• Guest houses or daily/weekly PG stays are provided

Professional Takeaway

When analysing GST on renting for hostels/PGs/co-living, apply this guiding principle:

Once the property is a residential dwelling and is actually used for residence, GST exemption under Entry 13 applies—regardless of intermediaries or the corporate character of the lessee.

This judgment is now the final word and should guide scrutiny replies, assessments, GST structuring, and lease documentation.

GST on Video Editing and Similar Digital/Professional Services

 By CA Surekha S Ahuja

As India becomes a global hub for digital, creative, and professional services, professionals supplying video editing, animation, design, software, consulting, and similar services to clients outside India need a precise understanding of GST, export classification, ITC eligibility, domestic advisory charges, and refund mechanisms.

This guidance note integrates legal provisions, CBIC circulars, real-world scenarios, and nuanced advisory for professionals, CAs, and business advisors.

Defining Export of Services under GST

Legal Basis – Section 2(6), IGST Act 2017

A service qualifies as an export only when all five conditions are satisfied:

Condition	Requirement	Analytical Insight
Supplier	Located in India	GST-registered supplier; supply from India
Recipient	Outside India	Must be a distinct legal entity; supply to branch/subsidiary of same entity is not export
Place of Supply	Outside India	Determined under Sec 13(2) IGST; exceptions under Sec 13(3) must be considered
Payment	In convertible foreign currency or RBI-approved INR	Non-compliance converts supply to domestic
Distinct Entities	Supplier and recipient	Ensures separate economic identity; critical for zero-rated supply

Section 13(2) – Default Place of Supply Rule:

“The place of supply of services, except services specified in sub-sections (3) to (13), shall be the location of the recipient of services.”

Exclusions:

• Sec 13(3)(a): Services linked to goods requiring physical presence

• Sec 13(3)(b): Services requiring supplier presence

Circular Reference:

• CBIC Circular 230/24/2024-GST (10.09.2024) confirms that digital and remote professional services exported to foreign clients are zero-rated, even when delivered online.

GST Treatment:

• Zero-rated supply under Sec 16 IGST.

• Full Input Tax Credit (ITC) claimable on inputs and services used for exported services.

• Supplier may either operate under LUT/Bond or pay IGST and claim refund via Form RFD-01.

Critical Compliance Notes:

• Foreign currency receipt is mandatory; proof of inward remittance is essential.

• Recipient must be a distinct legal entity.

• Contracts and invoices should clearly indicate recipient location, currency, and zero-rated supply.

Domestic Advisory/CA Fees Billed to Indian Entities

Scenario: Indian exporter hires a CA or consultant for compliance, structuring, or advisory services.

Analysis:

• Supply is domestic → GST 18% (SAC 9982/9983).

• Refund of GST not allowed.

• ITC may be claimed by the Indian exporter if advisory service is directly used for exported services.

Key Advisory Points:

1. Ensure invoice explicitly mentions GST.

2. Maintain contracts linking advisory work to exported services.

3. Record ITC in ledgers with clear mapping to exported supply.

4. Missing documentation may lead to ITC disallowance on audit.

Differential Table – Export vs Domestic Advisory:

Feature	Exported Service	Domestic Advisory Fee
GST Rate	0%	18%
Refund	Yes (LUT/IGST)	No
ITC	Fully claimable	Claimable if linked to export
Place of Supply	Recipient outside India	India

Platform or Intermediary-Based Supply

Scenario: Services routed via Indian platforms (Fiverr India, Upwork India) or intermediaries.

Analytical Treatment:

• Supplier → Platform (India) → Domestic supply → GST 18%

• Platform → Foreign Client → Export → Zero-rated supply

• ITC of GST paid to domestic supplier is claimable if used for exported service

Key Insights:

• Section 14 IGST (Principal Supply) applies → GST classification follows principal supply rules.

• Proper documentation linking domestic service to exported output is mandatory.

• Multi-layer invoicing requires accurate ITC tracking.

Place of Supply and Classification – Minute Detailing

Scenario	Section	Place of Supply	GST Treatment	Refund / ITC
Video editing / digital service → Foreign client	13(2)	Recipient outside India	Zero-rated	Refund claimable; ITC fully claimable
CA / advisory fees → Indian client	2(6)	India	Domestic 18%	Refund not allowed; ITC claimable if linked to export
Domestic intermediary / platform services	14	India	Domestic 18%	ITC claimable if linked to export
Platform → Foreign client	13(2)	Recipient outside India	Zero-rated	Refund claimable; ITC fully claimable

Professional Insights:

• Export classification hinges on recipient location and distinct legal entity.

• Documentation is key: invoices, contracts, and proof of remittance.

• ITC linkage must be auditable to withstand GST scrutiny.

Process & Documentation – Detailed Steps

1. Invoices:

   • Export: Foreign currency, zero-rated, reference LUT/Bond.

   • Domestic advisory: INR, GST 18%.

2. Contracts:

   • Explicitly identify foreign client, scope, and linkage with domestic advisory.

3. Payment Proof:

   • Foreign inward remittance certificates.

   • Domestic payment proof for CA/advisory fees.

4. LUT / IGST Refund Filing:

   • LUT/Bond for zero-rated supply.

   • Refund claim via Form RFD-01 if IGST is paid.

5. ITC Tracking:

   • Maintain detailed ledgers of GST paid on domestic advisory/input services.

   • Explicit mapping to exported services is mandatory.

Risk Triggers and Compliance Safeguards

• Non-convertible currency → Export classification fails → GST liability arises.

• Recipient not distinct → Reclassified as domestic → Zero-rating denied.

• Misclassification of platform services → Refund denial.

• Missing contracts, invoices, or remittance proof → ITC disallowance.

• Domestic advisory fees without linkage → ITC disallowed.

Professional Advisory:

• Maintain complete documentation, including contracts, invoices, bank remittance, and ITC ledger.

• Verify recipient location, entity status, and currency of receipt.

• Ensure LUT/Bond filing prior to export.

FAQs 

Q1: Are remote video editing or digital services exported?
A: Yes, if all Section 2(6) IGST conditions are met and payment is in foreign currency.

Q2: Can GST on CA/advisory fees billed in India be refunded?
A: No, domestic supply → refund not allowed. ITC may be claimed if linked to exported services.

Q3: Does platform invoicing affect export classification?
A: No, recipient location determines zero-rated treatment (Sec 13(2)).

Q4: Can payment in INR qualify as export?
A: Only if RBI-approved; otherwise, must be convertible foreign currency.

Key Takeaways – Ultimate Analytical Insights

• Exported services → Zero-rated GST; full ITC; foreign currency remittance proof essential.

• Domestic advisory / CA fees → GST 18%; no refund; ITC claimable if linked to exported service.

• Platform/intermediary arrangements → Accurate GST classification and ITC mapping essential.

• Documentation → Contracts, invoices, remittance proof, and ITC ledgers are critical.

• Audit Safeguard → Maintain clear linkage between domestic input and exported service.

Key Differentials / Risk Triggers:

• Currency of payment

• Recipient legal entity

• Place of supply (Sec 13(2)/Sec 14 IGST)

• Documentation & proof of payment

• ITC linkage and audit trail

Conclusion

This guidance note is the ultimate reference for professionals, exporters, CAs, and advisory firms. It provides:

• Law-based classification for exports and domestic advisory

• Detailed ITC and refund eligibility analysis

• Platform and intermediary flows

• Minute compliance steps and risk mitigation

• Audit-ready documentation advisory

It is designed to prevent GST defaults, enable zero-rated exports, and ensure professional compliance with maximum clarity.