GST on IT and Software Services: Rates and SAC Codes

If you run an IT services company, software agency, SaaS startup, or freelance development practice in India, GST applies to nearly every invoice you raise and every tool you subscribe to. The 18% rate is uniform across all IT service categories, but the compliance requirements differ based on whether you serve domestic clients, export services, or import software tools from foreign vendors.

This guide covers the GST framework for IT and software businesses operating in India.

GST Rates for IT and Software Services

The GST rate for all IT-related services is a flat 18%. There is no concessional rate or composition scheme equivalent for IT services.

Unlike restaurants (5% without ITC) or composition scheme businesses, IT companies pay the full 18% but get complete access to Input Tax Credit on all business inputs. This makes the effective tax burden significantly lower than 18% for most IT businesses with substantial input costs.

SAC Codes: Which One to Use on Your Invoice

The SAC code you mention on your tax invoice determines how your supply is classified during a GST audit. Here is the breakdown for IT services under heading 9983:

SAC 998311: Management consulting and management services, including IT project management and strategic IT advisory.

SAC 998312: Business and management consulting services with IT components.

SAC 998313: Information technology consulting and support services. Use this for helpdesk, technical support, system administration, and IT advisory engagements.

SAC 998314: Information technology design and development services. This is the most commonly used code for software companies. Covers custom application development, mobile app development, SaaS platforms, software implementation, and ERP customisation.

SAC 998315: Hosting and IT infrastructure provisioning services. Use this for web hosting, domain services, cloud infrastructure management, and managed hosting.

SAC 998316: IT infrastructure and network management services. Covers AMC contracts, IT maintenance, network administration, and ongoing support.

Invoice requirement: Businesses with annual turnover above Rs. 5 crore must mention the full 6-digit SAC code on every invoice. Businesses below Rs. 5 crore may use the 4-digit heading (9983), but using the full 6-digit code is best practice for all IT companies.

Packaged Software vs. Custom Development

GST treats software differently based on how it is delivered:

The practical distinction: if the customer receives a physical copy that can be stored and resold, it is goods under HSN 8523. If the customer receives a right to use via login, download, or online access, it is a service under SAC 9983.

For most modern IT companies, virtually all supplies will be services under SAC 998314 or 998315 since physical media distribution is rare.

Export of IT Services: Zero-Rated Supply

India's IT services industry earns most of its revenue from exports. Under Section 16 of the IGST Act, export of services is a zero-rated supply. This means:

• Output tax is 0% (you do not charge GST to your overseas client)
• You can still claim full ITC on all domestic inputs (rent, internet, tools, subcontractors)
• Accumulated ITC can be claimed as a refund

Five conditions for export of services (all must be met):

1. The supplier of service is located in India
2. The recipient of service is located outside India
3. The place of supply of service is outside India
4. Payment for the service is received in convertible foreign exchange or Indian rupees (where permitted by RBI)
5. The supplier and recipient are not merely establishments of a distinct person

Two routes for zero-rated export:

LUT is the preferred route. File Form GST RFD-11 once before the start of each financial year. It is valid for the entire year. No bond or bank guarantee is required for most exporters.

Refund of accumulated ITC: File Form RFD-01 to claim refund of ITC accumulated due to zero-rated exports. The refund is processed within 60 days (typically faster for IT companies with clean records).

Foreign currency realisation deadline: Export proceeds must be received within one year from the date of invoice. If not realised within this period, you must pay IGST with interest as if the supply were a domestic supply.

Reverse Charge on Import of Software Services

When your IT company buys software subscriptions, cloud services, or digital tools from foreign vendors, you are importing services. Under Section 5(3) of the IGST Act, the Indian recipient must pay 18% IGST under the Reverse Charge Mechanism (RCM).

Common imports triggering RCM:

How RCM works in practice:

1. You receive an invoice from the foreign vendor (without any Indian GST)
2. You self-assess 18% IGST on the invoice value (converted to INR at the RBI reference rate on the date of invoice)
3. You pay this IGST in cash through your electronic cash ledger in GSTR-3B (Table 3.1(d))
4. You claim the same amount as ITC in the same GSTR-3B return (Table 4(A)(2))
5. Net cash impact is zero if you have sufficient output liability to offset the ITC

Mandatory GST registration: Any person liable to pay tax under RCM must register under GST regardless of turnover. If your IT startup imports even one AWS subscription, GST registration becomes mandatory.

Input Tax Credit for IT Companies

IT companies operating at 18% GST with full ITC access can claim credit on all business inputs. This is a significant advantage over sectors like restaurants (5% without ITC).

Eligible ITC claims for IT companies:

Key documentation requirements:

• Invoice must carry your correct GSTIN
• Supplier must have filed their GSTR-1 (so the credit appears in your GSTR-2B)
• For RCM imports, you must pay the IGST in cash before claiming ITC
• Accept invoices in the Invoice Management System (IMS) on the GST portal

Common ITC pitfall: If a foreign SaaS vendor (like Adobe or Atlassian) charges through an Indian entity that is GST-registered, it is a forward charge supply, not an import. You receive a regular tax invoice and claim ITC normally. Only when the invoice comes directly from the foreign entity (or when there is no Indian billing entity) does RCM apply.

GST Registration Threshold for IT Companies

Practical reality: Almost every IT company in India needs GST registration. If you serve even one client in another state, or subscribe to a single foreign SaaS tool, the turnover threshold does not apply.

GST on Freelancers and IT Consultants

Individual IT freelancers and consultants follow the same 18% rate and SAC codes. The key differences:

Turnover threshold: A freelancer providing services only within their state and not importing any foreign tools can avoid registration until Rs. 20 lakh turnover. In practice, this is rare since most freelancers either export services or use foreign SaaS tools.

Presumptive taxation note: Freelancers opting for Section 44ADA (presumptive taxation for professionals) still need GST registration and compliance separately. Income tax and GST are independent frameworks.

Foreign income and LUT: Freelancers earning from overseas clients (via Upwork, Toptal, direct contracts) should file LUT in Form RFD-11 and claim zero-rated export benefits. The accumulated ITC on domestic expenses (internet, laptop, coworking) can be claimed as refund.

Monthly Compliance for IT Companies

GSTR-1 (by 11th of next month): Report all outward supplies. Segregate B2B invoices (with client GSTIN) from B2C invoices. Export invoices should be reported with shipping bill details or LUT reference.

GSTR-3B (by 20th of next month): Summary return showing output tax, ITC claimed, RCM paid, and net tax payable. Report reverse charge liability in Table 3.1(d) and corresponding ITC in Table 4(A)(2).

Annual return GSTR-9 (by December 31): Mandatory if turnover exceeds Rs. 2 crore.

LUT renewal (before April 1 each year): File fresh Form RFD-11 for the new financial year if you export services.

ITC refund (quarterly or monthly): File Form RFD-01 to claim refund of accumulated ITC from zero-rated exports. IT exporters in HITEC City and Madhapur often work with a GST consultant in Hyderabad who has handled RFD-01 claims before.

Common Mistakes IT Companies Make

1. Not paying RCM on foreign SaaS subscriptions. Every AWS, Google Cloud, Adobe, or Atlassian invoice from a foreign entity triggers reverse charge. Skipping this creates a liability that surfaces during assessment with 18% interest.

2. Using wrong SAC code. A software development company using SAC 998311 (management consulting) instead of 998314 (IT development) creates misclassification risk. Match the code to the actual service.

3. Not filing LUT for exports. Without a valid LUT, you must charge 18% IGST on export invoices and then apply for refund. This locks up 18% of your export revenue for months.

4. Claiming ITC on blocked items. Food, health insurance, and motor vehicles are blocked credits under Section 17(5) regardless of business use. Do not claim ITC on these.

5. Missing foreign currency realisation deadline. If export proceeds are not received within one year of the invoice date, the zero-rating lapses. You owe IGST plus interest from the original due date.

6. Not reconciling GSTR-2B for subcontractor credits. If your subcontractor or vendor has not filed their GSTR-1, the ITC will not appear in your GSTR-2B and cannot be claimed. Reconcile monthly.

7. Freelancers ignoring GST below Rs. 20 lakh. If you use any foreign tool (GitHub, Figma, AWS) or serve any out-of-state client, registration is mandatory from day one. The threshold does not protect you.

Practical Example: Monthly GST for a Software Agency

Consider a software development agency in Hyderabad with the following monthly profile:

Revenue:

• Domestic clients (intra-state): Rs. 15,00,000
• Export clients (US/UK): Rs. 25,00,000 (zero-rated with LUT)

Expenses with GST:

• Office rent: Rs. 2,00,000 + Rs. 36,000 GST (18%)
• AWS hosting (foreign, RCM): $800 = ~Rs. 67,000 + Rs. 12,060 IGST self-assessed
• Adobe/Atlassian (foreign, RCM): $500 = ~Rs. 42,000 + Rs. 7,560 IGST self-assessed
• Subcontractor invoices: Rs. 5,00,000 + Rs. 90,000 GST (18%)
• Internet + telecom: Rs. 15,000 + Rs. 2,700 GST (18%)

GST calculation:

The Rs. 19,620 RCM is paid in cash and immediately claimed as ITC, so the net RCM impact is zero. The remaining ITC from rent, subcontractors, and telecom reduces the domestic output liability.

Accumulated ITC from exports: Since Rs. 25 lakh of revenue is zero-rated but the agency still incurs input costs, ITC accumulates. The agency files Form RFD-01 quarterly to claim refund of this accumulated credit.

OIDAR Services: When Foreign Software Providers Must Register in India

If your IT company provides SaaS or digital services to non-registered consumers in India from outside India, you fall under OIDAR (Online Information and Database Access or Retrieval) provisions.

Key OIDAR rules:

• Foreign providers of digital services to unregistered Indian consumers must obtain GST registration in India
• No turnover threshold applies. Registration is mandatory from the first transaction
• File GSTR-5A monthly (by 20th of the following month)
• Pay 18% IGST on every supply to unregistered Indian consumers
• If your Indian customers are GST-registered businesses, OIDAR does not apply. The Indian business pays under RCM instead

Practical implication for Indian IT companies: If you build a SaaS product consumed by both Indian businesses (B2B) and Indian individuals (B2C), your B2B sales are normal forward charge supplies. Your B2C sales within India are also normal supplies. OIDAR is relevant only if you are a foreign entity selling to Indian consumers.

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Sources and verification: This guide draws from Section 16 of the IGST Act 2017 (zero-rated supply), Section 5(3) of the IGST Act (reverse charge on import of services), Section 17(5) of the CGST Act (blocked credits), and Notification No. 10/2017-IT (Rate) for GST rates on services. SAC codes verified against the CBIC GST Services portal (services.gst.gov.in/services/searchhsnsac), IndiaFilings (indiafilings.com/learn/sac-code-gst-rate-it-services), and ClearTax (cleartax.in/s/gst-on-software). LUT and export procedures verified against ClearTax (cleartax.in/s/gst-export-bond-and-lut), CAClubIndia (caclubindia.com LUT guide), and RazorPay (razorpay.com/blog/export-services-gst-conditions-guide). RCM provisions verified against CBIC RCM flyer (gstcouncil.gov.in) and India Briefing (india-briefing.com). Registration thresholds confirmed via ClearTax (cleartax.in/s/gst-registration-limits-increased) and Tally Solutions (tallysolutions.com/gst/gst-limit-registration-threshold-india). All rates and rules current as of May 2026.

Frequently Asked Questions

Which SAC code should a software development company use on its invoices?

Custom software, app development, SaaS platforms and ERP implementation usually fall under SAC 998314, information technology design and development services. Hosting and cloud infrastructure provisioning use 998315, network and IT infrastructure management uses 998316, and IT consulting and support uses 998313. All of these are taxed at 18%, so the code matters for correct classification rather than the rate.

Do I charge GST when I bill a client in the US or UK for software work?

Not if the supply qualifies as an export of services and you have a valid LUT in Form RFD-11 for the year. The invoice is then zero-rated, with no IGST charged, and you can still claim input tax credit on domestic costs such as rent and subcontractors, and seek a refund of the unused credit. Without an LUT, you must charge IGST and claim it back as a refund.

What happens if export payment is not received in time?

A service exporter using an LUT must receive payment within one year of the invoice date or any longer period allowed. If it is not received, the exporter has to pay IGST on that invoice with interest, as if it were a taxable supply. Keep the foreign inward remittance certificate or bank realisation proof for every export invoice.

Is GST on AWS or Adobe subscriptions paid under reverse charge?

It depends on who issues the invoice. If an Indian entity with a GSTIN bills you with GST, it is a normal domestic purchase and you claim the credit as usual. If the foreign company bills a GST-registered business without Indian GST, you pay 18% IGST under reverse charge in cash and claim the same amount back as credit in that month's GSTR-3B.

Can an IT company claim input tax credit on staff health insurance and cabs?

Generally no. Food and beverages, health insurance, motor vehicles and related services are blocked credits under Section 17(5), unless the employer is obliged under a law to provide them. Credit is available on rent, internet, software, subcontractor invoices and professional fees used for the business, as long as they show in GSTR-2B.