GST on Import of Services: RCM Obligation When Paying Foreign Vendors

If your company has paid a US strategy consultant, a Singapore-based chartered accountant for a transfer-pricing report, a foreign law firm for cross-border deal advice, or an offshore developer for custom software, you have almost certainly triggered a GST liability that no invoice ever mentioned. The foreign vendor billed you without any GST, because a supplier sitting outside India has no Indian GST registration and no obligation to charge it. The law shifts that obligation onto you. Under the reverse charge mechanism, the Indian recipient becomes the person liable to pay the tax.

This catches a large number of growing businesses off guard. The invoice looks clean, the payment goes out through your bank with a Form 15CA filed for the remittance, and the GST obligation is quietly overlooked. The good news is that for genuine business services, the tax is usually recoverable in full as input tax credit in the very same return, so the real cost is interest and exposure if you miss it, not the tax itself. This guide walks through exactly when RCM applies, how to discharge it, and where businesses get it wrong.

What Counts as an "Import of Services" Under GST?

The trigger for the whole obligation is the definition in Section 2(11) of the IGST Act, 2017. A supply is an import of service only when all three of the following conditions are met at the same time:

If even one condition fails, it is not an import of service and RCM under this head does not arise. The first two are usually easy to verify. The third, place of supply, is the one to think about. For most services, the default rule under Section 13(2) is that the place of supply is the location of the recipient, which for an Indian business means India. There are exceptions (for example, services directly related to immovable property are taxed where the property is located), so a foreign architect designing a building situated abroad would not create an Indian place of supply.

For the typical professional or technical service consumed by an Indian company at its Indian operations, all three boxes are ticked, and you have an import of service.

Who Pays the GST? The Reverse Charge Mechanism

In an ordinary domestic transaction, the supplier collects GST from the customer and pays it to the government (forward charge). That model breaks down when the supplier is sitting in New York or Singapore with no reach into the Indian GST system.

So the law reverses the charge. Section 5(3) of the IGST Act empowers the government to notify supplies on which the recipient pays the tax. Notification No. 10/2017-Integrated Tax (Rate) does exactly that for import of services: any service supplied by a person located in a non-taxable territory to a person located in the taxable territory (other than a non-taxable online recipient) is taxed in the hands of the Indian recipient.

The practical consequences:

• The foreign supplier does not register in India and does not charge GST. Their invoice is correctly GST-free.
• The Indian recipient self-assesses and pays IGST under reverse charge.
• The liability is IGST, not CGST plus SGST, because the supply is treated as inter-state under Section 7(4) of the IGST Act (any import of service is an inter-state supply).

This applies whether or not you are otherwise registered for the specific transaction. If you are a registered person receiving an import of service, the RCM liability is yours.

What Rate Applies?

A common misconception is that imported services attract some special "foreign" rate. They do not. The rate under reverse charge is the same rate that would apply if the identical service were supplied domestically.

For the overwhelming majority of business services a growing Indian company imports (consulting, legal, accounting, software, marketing) the rate is 18% IGST. Always confirm the classification (HSN/SAC) of the specific service, because a handful of categories carry lower rates, but treat 18% as the working assumption for professional and technical services.

OIDAR vs Non-OIDAR: The Distinction That Decides Everything

This is the single most important distinction, and getting it wrong is where most errors begin. Whether you pay RCM, or whether the foreign supplier is supposed to have already charged you GST, depends on whether the service is OIDAR or non-OIDAR.

OIDAR stands for Online Information and Database Access or Retrieval services. These are services delivered over the internet that are essentially automated and involve minimal human intervention. Think cloud subscriptions, digital advertising platforms, online software tools, streaming, and similar self-serve digital products.

The reason OIDAR is carved out is practical. A platform selling to millions of Indian individual consumers cannot rely on each consumer to self-assess GST, so the law makes the foreign OIDAR supplier register and collect the tax. That is why your Google Ads or Meta Ads invoice, your Canva subscription, and your Netflix bill already show Indian GST: the platform is registered here and has charged you. You do not pay RCM again on those.

For non-OIDAR B2B services, the answer is simpler and absolute: the Indian business recipient always pays under RCM. A foreign lawyer or a Singapore CA is delivering bespoke human work, not an automated online product, so they neither register nor charge, and the obligation sits with you.

One more point on OIDAR. After the October 1, 2023 amendment (via the Finance Act, 2023), the OIDAR definition was widened. The earlier requirement that human intervention be "impossible to ensure" was removed, and the exclusion for the "non-taxable online recipient" was tightened. The "essentially automated and minimal human intervention" test now does the heavy lifting in classifying borderline services. The takeaway: where a service is genuinely human-delivered and customised, it is non-OIDAR, and RCM applies to your business.

Real Non-OIDAR Examples for Indian Businesses

Here are the kinds of imports that trigger RCM, and the trap to watch for at the end.

The "Who Actually Billed You?" Test

There is an important caveat on cloud and enterprise software. Large platforms such as AWS, Azure, GCP, Salesforce, and SAP often serve Indian customers through an Indian billing entity. When the invoice is raised by the Indian arm (for example, "Amazon Web Services India Private Limited" or a similar Indian entity), that is a domestic supply. The Indian entity charges you CGST plus SGST or IGST in the normal way, and there is no import of service and no RCM.

RCM is triggered only when the invoice is raised by the foreign entity (for example, billed from "Amazon Web Services, Inc." in the US or an overseas group company) with no Indian GST on it. The same platform can therefore be a domestic supply for one customer and an import for another, depending purely on who issued the invoice.

How to check, in order:

1. Read the "billed by" / supplier name on the invoice. Indian legal entity name (Pvt Ltd, Private Limited, India) means domestic.
2. Look for a GSTIN on the invoice. If a valid 15-digit Indian GSTIN is printed and GST is charged, it is a domestic supply, no RCM.
3. If the supplier is a foreign entity and no Indian GST is charged, treat it as an import of service and apply RCM (after confirming OIDAR vs non-OIDAR).

How to Discharge the RCM Liability

Once you have established that a payment is a non-OIDAR import of service, here is the mechanism.

Step 1: Determine the Time of Supply

For reverse charge on services, Section 13(3) of the CGST Act fixes the time of supply as the earlier of:

• the date of payment to the supplier (as recorded in your books or debited from your bank), or
• the date immediately following 60 days from the date of the supplier's invoice.

In practice, because foreign vendors are usually paid promptly, the date of payment is normally the trigger. The liability arises in the month in which that time of supply falls, and that is the GSTR-3B period in which you must account for it.

Step 2: Pay IGST in Cash via GSTR-3B Table 3.1(d)

Report the import of service under Table 3.1(d) (inward supplies liable to reverse charge) of GSTR-3B. The IGST so computed must be paid in cash through the electronic cash ledger. This is a firm rule: RCM liability cannot be set off against input tax credit. You must fund the cash ledger and discharge the tax.

Step 3: Claim the Same IGST Back as ITC

In the same GSTR-3B, you claim the IGST you just paid as input tax credit under Table 4A(3) (inward supplies liable to reverse charge), provided the service is used in the course or furtherance of business and is not blocked under Section 17(5). The net economic effect for a fully taxable business is nil: you pay the tax in cash and recover it as credit in the same return.

This is why RCM on legitimate business services is, for most companies, a compliance step rather than a real cost. The exposure is in not doing it, not in the tax itself.

When the ITC Is Not Available

The "net cost is zero" outcome only holds when you can actually claim the credit. You cannot, in these situations:

• Personal or non-business use. If the imported service is for personal consumption rather than business, no ITC is available, and the RCM tax becomes a real cost.
• Used for exempt supplies. Where the service is attributable to exempt or non-taxable output supplies, the credit is restricted or denied under the apportionment rules (Section 17(1) and (2)).
• Blocked credits under Section 17(5). Certain categories of credit are blocked regardless of business use (for example, specified motor vehicles, certain memberships, goods or services for personal consumption). If an imported service falls into a blocked category, the RCM IGST is still payable in cash but cannot be recovered as ITC.

In each of these cases the RCM IGST is a genuine cost to the business, which makes correct classification and tracking all the more important.

Common Mistakes

1. Not paying GST on foreign invoices at all. The most frequent error. The invoice carries no GST, so the obligation is invisible. Every foreign-billed service invoice should be screened for RCM. The fact that the vendor did not charge GST is exactly why you must.

2. Accounting for it in the wrong period. RCM is due in the period of the time of supply (usually date of payment), not whenever you happen to notice the invoice. Posting a January payment in March's GSTR-3B understates an earlier liability and runs interest.

3. Trying to pay RCM through ITC. The RCM tax must be paid in cash through the electronic cash ledger. Some teams attempt to offset it against existing credit balance, which the portal will not allow for the RCM liability.

4. Forgetting to claim the offsetting ITC. Paying the RCM IGST in cash but missing the Table 4A(3) credit in the same return turns a zero-cost compliance step into a real cash leakage.

5. Not reconciling with Form 15CA/15CB. Every foreign remittance for services is generally accompanied by Form 15CA (and Form 15CB where required) filed under the income-tax rules. These forms are a complete record of what you paid foreign vendors. If your GSTR-3B reverse-charge entries do not reconcile with your 15CA/15CB filings, you have either missed an RCM payment or misreported a remittance. Reconciling the two is the single best control for catching missed imports of services.

6. Treating an Indian-billed cloud invoice as an import. The mirror error: applying RCM to a Salesforce or AWS invoice that was actually billed by the Indian entity and already carried GST. That double-counts the tax. Always run the "who billed you" test first.

Penalty for Non-Payment

Failing to discharge RCM is not a free option even though the tax is usually creditable. The consequences:

• Interest under Section 50 of the CGST Act at 18% per annum on the tax that should have been paid, running from the due date until actual payment. Because the RCM liability must be paid in cash, this interest accrues on the cash amount, and the later-claimed ITC does not retroactively erase the interest period.
• Penalty under Section 122 of the CGST Act for failure to pay tax or short payment, which can apply in addition to the interest depending on the facts and whether the default is treated as inadvertent or otherwise.

The asymmetry is the point. If you account for RCM correctly, the net tax cost is typically nil. If you miss it, you face interest and potential penalty on tax you would have recovered anyway. Discharging RCM on time is the most effective way to reduce exposure to penalties on imported services.

How Tax Garden Helps

Tax Garden's compliance plans take the guesswork out of imported services. We screen every foreign-vendor invoice you raise to identify which payments are non-OIDAR imports liable to reverse charge, classify the service and confirm the correct IGST rate, and compute the time of supply so the liability lands in the right GSTR-3B period. We file the return with the RCM tax under Table 3.1(d) and the offsetting credit under Table 4A(3), and we reconcile your reverse-charge entries against your Form 15CA/15CB remittance records so your tax returns and your bank remittances tell the same story. Flat-fee pricing, no surprises.

Frequently Asked Questions

Does my foreign vendor need to register for GST in India?

No. For a non-OIDAR service supplied by a foreign vendor to an Indian business, the supplier does not register in India and correctly issues an invoice without any GST. The Indian recipient pays IGST under the reverse charge mechanism, under Section 5(3) of the IGST Act read with Notification No. 10/2017-Integrated Tax (Rate). The only situation where a foreign supplier registers is OIDAR services supplied to non-taxable online recipients in India.

What rate of GST applies when I pay a foreign consultant?

The same rate as a domestic supply of the identical service. For professional, legal, consulting, accounting, marketing, and custom software services, that is 18% IGST. A few categories such as specified goods transport carry lower rates, so confirm the service classification, but treat 18% as the working assumption for professional and technical services.

Can I pay the reverse-charge GST using my input tax credit balance?

No. Reverse-charge liability must be paid in cash through the electronic cash ledger and reported under Table 3.1(d) of GSTR-3B. It cannot be set off against your input tax credit balance. You can, however, claim the same IGST back as ITC under Table 4A(3) in the same GSTR-3B, provided the service is for business use and not blocked under Section 17(5).

If I claim the ITC back, is the net cost really zero?

For a fully taxable business using the service in the course of business, yes. You pay the IGST in cash and recover the identical amount as input tax credit in the same return, so the net tax cost is nil. The cost is not zero where the service is for personal use, is attributable to exempt supplies, or falls within the blocked credits under Section 17(5), in which case the RCM tax is a real cost.

Do I pay reverse charge on Google Ads, Meta Ads, or my Canva subscription?

Generally no. These are OIDAR services. The foreign platforms are registered in India and charge Indian GST directly on their invoices, so you do not account for reverse charge again on those amounts. Reverse charge applies to non-OIDAR services such as a foreign lawyer, a US consultant, a Singapore CA, or an offshore custom developer, where the vendor bills you with no Indian GST.

Is reverse charge due on my AWS or Salesforce invoice?

It depends on who billed you. If the invoice is raised by an Indian entity (for example, an Indian Private Limited company) and carries a valid Indian GSTIN with GST charged, it is a domestic supply and no reverse charge applies. If the invoice is raised by the foreign entity with no Indian GST, treat it as an import of service and apply reverse charge after confirming the OIDAR position. Always check the supplier name and GSTIN on the invoice first.

What happens if I never paid reverse-charge GST on foreign invoices?

Interest at 18% per annum under Section 50 of the CGST Act runs on the unpaid tax from the due date to the date of actual payment, and a penalty under Section 122 of the CGST Act may apply depending on the facts. Because the reverse-charge tax must be paid in cash, the interest accrues on the cash amount even though the tax would otherwise have been recoverable as input tax credit. Reconciling your GSTR-3B reverse-charge entries against your Form 15CA and 15CB filings is the best way to find and correct any missed imports.

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Sources and verification: This guide draws from Section 2(11) (definition of import of service), Section 5(3) (reverse charge by notification), Section 7(4) (import of service treated as inter-state supply), and Section 13 (place of supply of services where supplier or recipient is outside India) of the IGST Act, 2017. Reverse charge on import of services is notified under Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017. Time of supply under reverse charge is per Section 13(3) of the CGST Act, 2017 (earlier of date of payment or the date immediately following 60 days from the invoice). GSTR-3B reporting positions (reverse-charge liability in Table 3.1(d) and reverse-charge ITC in Table 4A(3)), the cash-payment rule for reverse charge, and input tax credit eligibility and blocked credits under Section 17 (including Section 17(5)) are per the CGST Act, 2017 and CGST Rules, 2017. Interest is per Section 50 and penalty per Section 122 of the CGST Act, 2017. The OIDAR definition and the non-taxable online recipient changes referenced are per Section 2(17) of the IGST Act as amended by the Finance Act, 2023, effective October 1, 2023. Form 15CA and 15CB are filed under Rule 37BB of the Income-tax Rules, 1962. All rates, sections, and provisions confirmed as of June 2026.