Key Takeaways
- All IT and software services in India attract 18% GST (9% CGST + 9% SGST for intra-state, or 18% IGST for inter-state).
- Custom software development falls under SAC 998314/998315. Packaged software on physical media uses HSN 8523 (also 18%).
- Export of IT services is zero-rated under Section 16 of the IGST Act. File a Letter of Undertaking (LUT) in Form RFD-11 to export without paying IGST upfront.
- When you buy SaaS subscriptions or cloud services from foreign vendors (AWS, Azure, Adobe, Atlassian), you must self-assess and pay 18% IGST under reverse charge. You can claim this back as ITC the same month.
- IT companies making inter-state supplies must register for GST regardless of turnover. The normal ₹20 lakh threshold does not apply.
- Full Input Tax Credit is available on office rent, laptops, internet, domain hosting, software licences, and subcontractor invoices used for taxable business purposes.
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.
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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.
| Service Type | Classification | Code | GST Rate | ITC Available? |
|---|---|---|---|---|
| IT consulting and support | Service | SAC 998313 | 18% | Yes |
| Custom software development | Service | SAC 998314 | 18% | Yes |
| Website design and development | Service | SAC 998315 | 18% | Yes |
| Cloud hosting and data centre | Service | SAC 998316 | 18% | Yes |
| Management consulting (IT PMO) | Service | SAC 998311 | 18% | Yes |
| SaaS subscription (domestic) | Service | SAC 998314 | 18% | Yes |
| Packaged software (physical media) | Goods | HSN 8523 | 18% | Yes |
| Software licence (electronic delivery) | Service | SAC 998314 | 18% | Yes |
| IT maintenance/AMC contracts | Service | SAC 998316 | 18% | Yes |
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 ₹5 crore must mention the full 6-digit SAC code on every invoice. Businesses below ₹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:
| Delivery Method | Classification | Code | Treatment |
|---|---|---|---|
| Software on CD/DVD/USB (physical media) | Supply of goods | HSN 8523 80 20 | Goods, 18% GST |
| Software licence via electronic download | Supply of services | SAC 998314 | Service, 18% GST |
| SaaS/cloud subscription (right to use) | Supply of services | SAC 998314 | Service, 18% GST |
| Custom software development project | Supply of services | SAC 998314 | Service, 18% GST |
| Implementation + licence bundle | Mixed/composite supply | SAC 998314 | Service (principal supply), 18% |
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):
- The supplier of service is located in India
- The recipient of service is located outside India
- The place of supply of service is outside India
- Payment for the service is received in convertible foreign exchange or Indian rupees (where permitted by RBI)
- The supplier and recipient are not merely establishments of a distinct person
Two routes for zero-rated export:
| Route | How it works | Cash flow impact |
|---|---|---|
| LUT (Letter of Undertaking) | File Form RFD-11 on GST portal before export. Invoice without IGST. Claim ITC refund separately. | Best cash flow. No upfront tax payment. |
| Payment of IGST | Charge 18% IGST on export invoice. Claim refund of IGST paid. | Locks up working capital until refund is processed. |
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:
| Foreign Service | Examples | RCM Rate |
|---|---|---|
| Cloud infrastructure | AWS, Google Cloud, Azure | 18% IGST |
| SaaS subscriptions | Atlassian, Notion, Slack, GitHub | 18% IGST |
| Design/productivity tools | Adobe Creative Cloud, Figma, Canva Pro | 18% IGST |
| Advertising services | Google Ads, Meta Ads, LinkedIn Ads | 18% IGST |
| Domain and hosting | GoDaddy, Cloudflare, Namecheap | 18% IGST |
| Freelancer payments (foreign) | Upwork, Toptal contractors | 18% IGST |
How RCM works in practice:
- You receive an invoice from the foreign vendor (without any Indian GST)
- You self-assess 18% IGST on the invoice value (converted to INR at the RBI reference rate on the date of invoice)
- You pay this IGST in cash through your electronic cash ledger in GSTR-3B (Table 3.1(d))
- You claim the same amount as ITC in the same GSTR-3B return (Table 4(A)(2))
- 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:
| Input | GST Paid | ITC Claimable? |
|---|---|---|
| Office rent (commercial property) | 18% | Yes |
| Co-working space membership | 18% | Yes |
| Laptops, monitors, peripherals | 18% | Yes |
| Internet and telecom services | 18% | Yes |
| Cloud hosting (domestic vendor) | 18% | Yes |
| Cloud hosting (foreign vendor, paid via RCM) | 18% | Yes |
| Software licences (domestic) | 18% | Yes |
| Software licences (foreign, paid via RCM) | 18% | Yes |
| Subcontractor/freelancer invoices | 18% | Yes |
| Office furniture and interiors | 18% (12% for some items) | Yes |
| Electricity | 0% (exempt) | No (exempt supply) |
| Food and beverages for employees | 5%/18% | No (blocked under Section 17(5)) |
| Health insurance (employee benefit) | 18% | No (blocked under Section 17(5)) |
| Motor vehicle purchase/maintenance | 28%/18% | No (blocked, with exceptions) |
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
| Scenario | Registration required? |
|---|---|
| IT services, intra-state only, turnover above ₹20 lakh | Yes |
| IT services, intra-state only, turnover below ₹20 lakh | No (voluntary allowed) |
| IT services with any inter-state client | Yes, mandatory regardless of turnover |
| Importing services from foreign vendors (AWS, etc.) | Yes, mandatory regardless of turnover |
| Freelancer earning from foreign clients (export) | Yes, mandatory to claim zero-rating and ITC refund |
| IT company in special category state, turnover above ₹10 lakh | Yes |
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 ₹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 ₹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.
Common Mistakes IT Companies Make
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
Freelancers ignoring GST below ₹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): ₹15,00,000
- Export clients (US/UK): ₹25,00,000 (zero-rated with LUT)
Expenses with GST:
- Office rent: ₹2,00,000 + ₹36,000 GST (18%)
- AWS hosting (foreign, RCM): $800 = ~₹67,000 + ₹12,060 IGST self-assessed
- Adobe/Atlassian (foreign, RCM): $500 = ~₹42,000 + ₹7,560 IGST self-assessed
- Subcontractor invoices: ₹5,00,000 + ₹90,000 GST (18%)
- Internet + telecom: ₹15,000 + ₹2,700 GST (18%)
GST calculation:
| Item | Amount |
|---|---|
| Output GST on domestic revenue (18%) | ₹2,70,000 |
| Output GST on exports (zero-rated) | ₹0 |
| RCM on foreign services (AWS + Adobe) | ₹19,620 (paid in cash) |
| Total output liability | ₹2,89,620 |
| ITC on rent | ₹36,000 |
| ITC on subcontractors | ₹90,000 |
| ITC on internet | ₹2,700 |
| ITC on RCM (self-assessed) | ₹19,620 |
| Total ITC | ₹1,48,320 |
| Net GST payable in cash | ₹1,41,300 |
The ₹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 ₹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.
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.
