GST on Import of Services in India: RCM, IGST and ITC on SaaS Payments

If an Indian business purchases SaaS, cloud hosting, software access, consulting, advertising or other services from a foreign vendor, it may have to pay GST in India under the reverse charge mechanism (RCM).

In a typical business-to-business import of services, the Indian recipient calculates and pays integrated GST (IGST) in its GST return. Indian GST may not appear on the foreign vendor’s invoice. That does not, by itself, remove the recipient’s RCM liability.

A registered business may claim input tax credit (ITC) for IGST paid on services used for business, subject to the usual ITC conditions. The RCM tax must first be paid in cash; existing ITC cannot be used to pay it.

The result depends on the nature of the service, the recipient’s status, the place of supply and, in some cases, the relationship between the vendor and the Indian entity. This guide covers the main rules for Indian businesses paying foreign vendors.

When is a service an import of services?

Under section 2(11) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), a service is an import of services if all three conditions are met:

1. The supplier is located outside India.
2. The recipient is located in India.
3. The place of supply is in India.

The place-of-supply test is important. Under the general rule in section 13(2) of the IGST Act, the place of supply is usually the recipient’s location. The Act has exceptions for certain services, so a business should not assume the general rule applies to every foreign invoice.

Services that may meet the import-of-services test include:

• Cloud storage or business software bought by an Indian business.
• Online advertising supplied by a foreign business to an Indian business.
• Consulting advice from a foreign consultant for Indian operations.
• Support, research or management services from an overseas group company.

Payment in Indian rupees does not change the analysis. A foreign software vendor’s invoice paid in rupees can still relate to an import of services.

Imported services and imported goods are different

This guide concerns services. For physical goods, customs duty and import IGST are generally handled through customs documentation, including a bill of entry. Those rules are different from RCM on an imported service.

Who pays IGST under reverse charge?

Section 5(3) of the IGST Act allows the Government to notify services on which the recipient pays IGST under RCM. Notification No. 10/2017–Integrated Tax (Rate) includes services supplied by a person in a non-taxable territory to a person in a taxable territory. For a typical business import of services, the Indian recipient is generally responsible for paying IGST.

The treatment can differ when a service is supplied to an individual consumer.

SaaS, cloud software and OIDAR

Some online software and digital subscriptions may qualify as online information and database access or retrieval services, commonly called OIDAR. The IGST Act defines OIDAR to include certain services delivered over the internet or an electronic network that are essentially automated, involve minimal human intervention and cannot be provided without information technology. Cloud services and online software are listed examples.

For a registered Indian business using a foreign SaaS provider, the transaction will commonly be considered under the import-of-services and RCM rules. For an individual consumer who is not registered and buys digital services for personal use, special OIDAR rules may make the foreign supplier responsible for GST.

Not every software service is automatically OIDAR, and foreign digital invoices are not all treated the same way. Review the contract, the service supplied, the recipient’s GST status and the relevant place-of-supply provision.

What if the business is not registered for GST?

A business should not assume that being below the usual turnover threshold removes GST obligations on a foreign service. Section 24(iii) of the CGST Act provides for compulsory registration for persons required to pay tax under reverse charge, subject to applicable exemptions.

Registration depends on the facts and any applicable notification. A business that regularly purchases foreign services should review its registration position before treating the purchase as outside GST. An individual receiving an online service for personal use may instead be a non-taxable online recipient under the OIDAR rules.

Is SaaS taxed at 18%?

Many standard software, cloud and other technology services are commonly taxed at 18%. However, not every service described as “SaaS” necessarily attracts the same rate. The classification and rate depend on what the vendor supplies and the applicable GST rate notification.

Check the service description, agreement, invoice and product information. Identify the appropriate service classification or Service Accounting Code (SAC), then verify the rate. A bundled contract may include different elements, so do not select a rate solely from the vendor’s marketing label.

For an invoice in foreign currency, convert the amount into rupees using the applicable GST exchange-rate rule. Rule 34 generally refers to the RBI reference rate on the date of time of supply.

Example: monthly software subscription

Suppose an Indian company buys a business software subscription from a foreign vendor for US$100. For illustration, assume the converted taxable value under the applicable rule is ₹8,300 and the verified GST rate is 18%.

• Taxable value: ₹8,300
• IGST under RCM: ₹8,300 × 18% = ₹1,494

The company pays ₹1,494 in cash toward its GST liability. If the subscription is used for eligible business purposes and the ITC conditions are met, it may then claim ₹1,494 as ITC. The exchange rate and tax period in this example are assumptions; use the applicable figures for the actual transaction.

When does the RCM liability arise?

Under section 13(3) of the CGST Act, the time of supply for a service on which the recipient pays GST under reverse charge is generally the earlier of:

• The date the recipient pays the supplier, as entered in the books or debited from the bank, whichever is earlier; or
• The date immediately following 60 days from the supplier’s invoice or similar document.

Where the foreign supplier is an associated enterprise, the time of supply is generally the earlier of the date the recipient records the supply in its books or the date of payment.

This rule determines the period in which the RCM liability arises. It is separate from the deadline for issuing the recipient’s self-invoice.

Self-invoice, records and tax payment

Under section 31(3)(f) of the CGST Act, an Indian registered person liable to pay tax under RCM must issue an invoice for a service received from a supplier not registered under GST. A foreign supplier not registered in India will generally not issue an Indian GST tax invoice for the RCM tax.

From 1 November 2024, Rule 47A of the CGST Rules sets a 30-day limit for issuing the recipient’s invoice, counted from the date the supply is received. Keep the foreign vendor’s commercial invoice as supporting documentation, but do not treat it as a substitute for the Indian RCM invoice where the self-invoice requirement applies.

The recipient must also issue a payment voucher, where required under section 31(3)(g), at the time of payment to the supplier. Keep an audit trail of:

• The supplier’s legal name, address and country.
• The nature and period of the service.
• The vendor invoice, contract and payment records.
• The GST registration receiving the service.
• The valuation, exchange rate, classification, applicable rate and RCM calculation.
• The self-invoice and payment voucher, where applicable.
• Proof of RCM tax payment and any ITC claimed.

Pay RCM through the electronic cash ledger; the electronic credit ledger cannot be used to discharge reverse-charge liability. The liability is reported in GSTR-3B for the relevant tax period. Imported-services RCM liability is reported in Table 3.1(d), and eligible ITC is reported in Table 4(A)(2). This ITC is not part of GSTR-2B, so do not rely on that statement alone to identify the credit.

Standard monthly filers generally file GSTR-3B by the 20th of the following month. QRMP filers generally file quarterly by the 22nd or 24th after the quarter, depending on the State or Union Territory; monthly tax payment requirements may also apply. Due dates can be extended, so check the GST portal for the period concerned.

For quarterly filers, see TaxClear’s GST QRMP guide for FY 2026–27.

Is ITC available on IGST paid under RCM?

A registered recipient may claim ITC for IGST paid on imported services if it meets the conditions in section 16 of the CGST Act and the credit is not blocked or restricted.

Check that:

• The service was actually received.
• It is used or intended to be used in the course or furtherance of business.
• The recipient has the required invoice or other prescribed document.
• The RCM tax has been paid to the Government.
• The recipient has filed the required GST return.
• The credit is not attributable to exempt supplies or personal use, and is not blocked under section 17(5).

Where a service supports taxable business activity as well as exempt or non-business activity, the eligible credit may need to be apportioned. A business cannot claim credit for a clearly personal service merely because it paid from a business account.

Section 16(4) generally sets the ITC deadline as the earlier of 30 November following the end of the relevant financial year or filing the annual return. For RCM invoices issued by the recipient, Circular No. 211/05/2024-GST clarifies how to determine the relevant financial year. Businesses should document and report RCM transactions promptly.

The RCM liability and the ITC claim are separate return entries. Pay the RCM tax in cash first. Eligible credit can generally be claimed in the same return period after payment, subject to the statutory conditions and correct reporting.

See TaxClear’s GSTR-3B and ITC mismatch guide for related reconciliation issues.

Special case: services from an overseas group company

An import of services from a related person or another establishment outside India may be treated as a supply even without consideration if it is in the course or furtherance of business. This follows from Schedule I to the CGST Act.

Not every activity of an overseas group company automatically results in a taxable import. Determine whether a service was supplied, who received it, where the place of supply is and whether it was for the Indian entity’s business.

Circular No. 210/04/2024-GST clarifies valuation in a specific situation: where a foreign related entity provides services to an Indian related entity eligible for full ITC, the value declared in the invoice may be treated as the open market value. If no invoice is issued in that situation, the value may be deemed nil under the clarification. This treatment depends on the full-ITC condition and the facts; it is not a general exemption for free services received from overseas affiliates.

Common mistakes to avoid

• Assuming a foreign vendor invoice is outside GST because it does not show Indian tax.
• Treating payment in rupees as a reason RCM does not apply.
• Using ITC in the electronic credit ledger to pay the RCM liability.
• Applying 18% automatically without checking the service classification and rate.
• Claiming ITC before paying RCM tax or without the required invoice.
• Reporting a foreign subscription under the wrong GST registration.
• Treating every free service from an overseas affiliate as automatically taxable or exempt.
• Relying only on GSTR-2B for an import where the recipient must account for RCM.

Foreign vendor payment checklist

Before paying a foreign vendor, the finance or tax team should:

1. Determine what service the contract covers.
2. Establish the supplier’s and recipient’s locations.
3. Identify the place of supply and any applicable special rule.
4. Check whether RCM or OIDAR rules apply and review the recipient’s registration position.
5. Confirm the service classification, GST rate and foreign-currency valuation.
6. Determine the time of supply and tax period.
7. Issue the required self-invoice within 30 days of receiving the supply.
8. Pay IGST under RCM in cash and report it in the correct GSTR-3B fields.
9. Claim ITC only after checking business use, tax payment, documentation and restrictions.
10. Retain the agreement, vendor invoices, payment proof and GST workings.

FAQs

Is GST applicable to a foreign SaaS subscription for an Indian business?

Often, yes. If the transaction meets the import-of-services conditions and the Indian recipient is liable under the applicable RCM rules, the business pays IGST even if the foreign vendor does not collect Indian GST.

Does GST apply if I pay the foreign vendor in Indian rupees?

The payment currency does not determine whether the service is an import. The supplier’s location, recipient’s location and place of supply are the key tests.

Can I use available ITC to pay RCM?

No. Pay reverse-charge GST through the electronic cash ledger. If eligible, claim ITC separately after paying the tax.

Can I claim ITC on software used partly for personal purposes?

Not for the personal-use portion. Business use, exempt supplies, blocked-credit rules and apportionment requirements must be considered.

Is 18% always the tax rate on foreign vendor payments?

No. Many SaaS and cloud services are commonly taxed at 18%, but the applicable rate depends on the service classification and rate notification.

Does a free service from a foreign group company attract RCM?

It may. A related-party import of services in the course or furtherance of business can be treated as a supply even without consideration. A specific valuation clarification may apply where the Indian recipient is eligible for full ITC, but the facts and documentation matter.