The GST Council has recommended an amendment to Schedule II of the Central Goods and Services Tax (CGST) Act, 2017, to uniformly classify transfers of title in Intellectual Property Rights (IPRs), whether temporary or permanent, as a supply of services.
The proposed change seeks to provide greater clarity on the GST treatment of intellectual property transactions, ease compliance and facilitate smoother cross-border dealings involving such rights.
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Uniform Treatment For IPR Transfers
Under the recommendation, temporary and permanent transfers of title in IPRs would receive the same classification under GST. The distinction between the duration or permanence of the transfer would no longer determine whether the transaction is treated as a supply of goods or services.
Schedule II currently expressly treats the temporary transfer, or permission to use or enjoy, an intellectual property right as a supply of services. The proposed amendment would extend clear statutory treatment to permanent transfers of title as well.
Classification of permanent transfers has previously raised questions because Schedule II also treats transfers of title in goods as supplies of goods. Earlier GST Council agenda papers recorded this interpretational issue in the context of intellectual property transactions.
Greater Clarity For Businesses
A uniform classification could reduce uncertainty for businesses entering into agreements involving the assignment or transfer of intellectual property, including patents, trademarks and copyrights.
For instance, a permanent assignment of ownership in a trademark would be expressly treated as a supply of services under the proposed framework. This would give businesses greater clarity when structuring agreements and determining the applicable GST compliance requirements.
The recommendation concerns the classification of the transaction. It does not, by itself, announce a GST rate reduction or exemption for IPR transfers.
Smoother Cross-Border Transactions
The Council has identified smoother cross-border IPR transactions as a key objective of the amendment. A consistent classification could help businesses assess transactions involving overseas buyers, sellers and group entities under the GST framework for services.
However, classification as a service would not automatically make every overseas transfer an export or qualify it for zero-rated treatment. The applicable statutory conditions would still need to be satisfied.
Amendment Required For Implementation
The proposal remains a recommendation to amend the CGST Act. Its implementation will depend on the enactment and commencement of the relevant legislative changes.
The final wording and effective date of the amendment will determine its precise scope and application to IPR transactions.
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