India’s GST Council Clears Export Rule Changes That Could Make Contract Manufacturing More Attractive

India’s GST Council has cleared changes to export definitions and refund procedures that could improve the commercial case for international businesses working with Indian manufacturers, engineering companies, consultants and other service providers.

One important change concerns work performed in India on goods belonging to a foreign customer. Certain processing, testing, repair, certification and research activities are expected to receive export-of-services treatment even when the goods do not physically leave India, subject to the applicable legal conditions.

The Council has also cleared changes intended to simplify refund procedures and improve access to eligible input tax credits.

For international companies, this matters because tax treatment and working-capital requirements can influence where they manufacture, process goods and locate specialist services.

The measures are expected to take effect from April 1, 2027, subject to applicable provisions and implementation requirements.

Key Takeaways

• India is adjusting parts of its GST export framework to address tax uncertainty affecting cross-border business arrangements.
• Certain services performed on foreign-owned goods in India may qualify for export treatment even when those goods remain in the country.
• Changes to refund procedures could help eligible businesses recover working capital more quickly.
• Contract manufacturers, engineering businesses, testing laboratories, repair specialists and some service exporters could benefit.
• International companies should assess the actual tax treatment of their proposed arrangements rather than assume every transaction with a foreign customer qualifies as an export.
• Indian companies with the right capabilities may find new opportunities to become suppliers or service partners to global businesses.

India is addressing a practical obstacle to cross-border manufacturing

When an international company considers moving part of its manufacturing to India, it evaluates more than labour costs, infrastructure and production capacity.

It also examines taxation, compliance, cash flow and the predictability of doing business across borders.

These considerations can become especially complicated when a foreign company owns the materials or equipment, an Indian company performs the work, and the finished goods remain in India or are delivered according to the foreign customer's instructions.

The business arrangement may be international, but the physical work takes place domestically.

That distinction has created GST classification questions for some business models.

The latest GST Council decisions seek to address parts of this problem by changing how certain services and contract-manufacturing arrangements are treated for export purposes.

For companies comparing India with other manufacturing locations, greater tax clarity could make the economics easier to evaluate.

What has changed?

Reporting on the GST Council's October 8 meeting identifies several measures relevant to cross-border businesses.

1. Work performed on foreign-owned goods

Certain activities involving goods belonging to a foreign customer—including processing, testing, repair, certification and research—are expected to qualify as exports of services under the revised framework, subject to applicable conditions.

This is commercially relevant where a foreign company retains ownership of goods while an Indian specialist performs work on them.

The distinction matters because export treatment can affect GST liabilities and the ability to claim eligible refunds.

2. Contract manufacturing for foreign principals

The Council has addressed the tax treatment of contract manufacturing and processing for overseas customers, including arrangements where the goods do not necessarily leave India.

This could matter to manufacturers that process materials, assemble products or undertake specialised production for a foreign principal.

The precise treatment will depend on the applicable legal provisions and the structure of the transaction. Businesses should verify the final rules before changing their invoicing or pricing arrangements.

3. Faster processing of eligible refunds

The Council has also cleared measures intended to improve the refund process, including risk-based provisional refunds for eligible taxpayers.

Faster refunds can make a meaningful difference in businesses that accumulate substantial input tax credits while operating on relatively tight working-capital cycles