GST on Software, SaaS, and IT Services in India 2026: Complete Rate and SAC Code Guide

India's Information Technology (IT) and Software-as-a-Service (SaaS) sector is one of the fastest-growing revenue sources globally. However, GST compliance for IT services is complex—driven by distinctions between software as a product, software as a service, and IT consulting. This comprehensive guide clarifies GST rates, SAC codes, export benefits, and registration requirements for IT companies, SaaS startups, freelance developers, and IT consultants.

Why GST on IT Services is Complex

GST classification of IT services depends on the nature of supply:

1. Pre-packaged software (shrink-wrap): Treated as goods (HSN 8523) → 18% GST
2. Custom-developed software: Treated as service (SAC 998311) → 18% GST
3. SaaS (cloud-based software): Treated as service (SAC 998315) → 18% GST
4. IT infrastructure services: Treated as service (SAC 998312, 998313) → 18% GST
5. IT consulting: Treated as service (SAC 998431) → 18% GST

The key rule: If software is developed to a buyer's specific requirements, it is classified as a service. If it is pre-packaged or off-the-shelf, it is classified as goods.

GST Rate on IT Services: 18% Standard Rate

All IT services in India are subject to 18% GST under the standard rate applicable to services. There is no reduced GST rate for IT services (except specific exceptions noted below).

GST Rate Breakdown

• CGST: 9% (Central GST)
• SGST: 9% (State GST)
• Total GST: 18% (for intra-state supplies)

For inter-state and export supplies:

• IGST: 18% (Integrated GST, applicable to inter-state supplies)
• Export: 0% (zero-rated for exports with proper documentation)

Exception: Pre-packaged Software on Physical Media

If you sell pre-packaged software on a physical medium (CD, USB, hard disk), it is classified as goods under HSN 8523 and also attracts 18% GST.

SAC Codes for IT Services in India

Service Accounting Code (SAC) is a 6-digit classification system for services under GST. Here are the key SAC codes applicable to the IT sector:

SAC 998311: IT Design and Development Services

Applicable to:

• Custom software development
• Bespoke application development
• Website design and development
• Database design and development
• IT project-based work

Examples:

• A developer builds a custom ERP system for a manufacturing company → SAC 998311
• A firm develops a mobile app for a client → SAC 998311
• A web agency designs and develops a corporate website → SAC 998311

GST Rate: 18%

SAC 998312: IT Infrastructure Provisioning Services

Applicable to:

• Data center services
• Server hosting (non-cloud)
• Network management services
• IT infrastructure setup and maintenance

Examples:

• A company provides dedicated server hosting → SAC 998312
• IT infrastructure management for corporate offices → SAC 998312

GST Rate: 18%

SAC 998313: IT Support Services

Applicable to:

• IT helpdesk and technical support
• Software maintenance and bug fixes
• Hardware support services
• System administration services

Examples:

• A company provides 24/7 IT support to another firm → SAC 998313
• Software bug fixes and patches → SAC 998313

GST Rate: 18%

SAC 998315: Hosting and IT Infrastructure Services (SaaS/PaaS/IaaS)

Applicable to:

• Software-as-a-Service (SaaS) subscriptions
• Platform-as-a-Service (PaaS)
• Infrastructure-as-a-Service (IaaS)
• Cloud storage and backup services
• Email hosting services
• CRM, ERP, accounting software subscriptions

Examples:

• A SaaS company provides cloud-based accounting software on subscription → SAC 998315
• A company offers cloud storage via subscription (e.g., similar to AWS S3) → SAC 998315
• HRM software available on monthly subscription → SAC 998315

GST Rate: 18%

SAC 998319: Other IT Services

Applicable to:

• IT training and certification courses (if conducted by IT companies)
• Bundled IT services not fitting other categories
• IT consultancy (general)

GST Rate: 18%

SAC 998431: Information Technology Consulting

Applicable to:

• IT strategy and roadmap consulting
• IT security consulting
• Digital transformation consulting
• Cloud migration consulting
• Business process optimization consulting

Examples:

• An IT consultant advises a company on cloud migration strategy → SAC 998431
• A consultant provides recommendations on cybersecurity → SAC 998431

GST Rate: 18%

Software as a Product vs Software as a Service

The GST classification of your business depends on how you deliver software:

Software as a Product (Goods)

Characteristics:

• Pre-packaged or off-the-shelf software
• Sold as a standalone product
• Buyer owns a license (time-limited or perpetual)
• No ongoing service component

HSN Code: 8523 (Software recorded on magnetic, optical, or semiconductor media)

GST Rate: 18%

Examples:

• Selling Microsoft Office licenses (pre-packaged software)
• Selling antivirus software CDs or downloads
• Selling an accounting software with a one-time license

Software as a Service (SaaS) — Service

Characteristics:

• Cloud-based, subscription-model software
• Buyer accesses software remotely via internet
• No ownership of the software; only access rights
• Ongoing service includes hosting, support, updates

SAC Code: 998315 (Hosting and IT infrastructure services)

GST Rate: 18%

Examples:

• Slack, Salesforce, HubSpot subscriptions
• Cloud-based accounting software
• Email marketing platforms (Mailchimp, ConvertKit)
• Project management tools (Asana, Monday.com)

Customized/Bespoke Software — Service

Characteristics:

• Software developed specifically for a client
• Non-transferable to other clients
• Designed to meet client's unique requirements

SAC Code: 998311 (IT design and development services)

GST Rate: 18%

Examples:

• A custom ERP built for a specific manufacturing company
• A bespoke mobile app for a startup
• Custom reporting dashboard for an enterprise client

Key Rule

If software is developed to a buyer's specific requirement = Service (SAC 9983xx)

If software is pre-packaged or off-the-shelf = Goods (HSN 8523)

Export of IT Services: Zero-Rated (0% GST)

Exporting IT services outside India is zero-rated under GST, meaning:

• GST charged: 0%
• Input Tax Credit (ITC): Claimable on export of services
• Requirement: Payment received in convertible foreign exchange

Conditions for Zero-Rated Export

1. Payment in Foreign Exchange:

   • Export service must be paid in convertible foreign currency (USD, EUR, GBP, etc.)
   • Payment must be received in an overseas bank account or via SWIFT

2. Documentation Required:

   • FIRC (Foreign Inward Remittance Certificate) from the bank
   • Commercial invoice showing export date and foreign exchange received
   • GST invoice mentioning "Supply meant for export without payment of IGST"
   • Advance Authority (AA) or Letter of Undertaking (LUT) registration

3. Filing Returns:

   • Declare export turnover separately in GSTR-1
   • Claim ITC on inputs in GSTR-3B (subject to export value)

LUT (Letter of Undertaking) vs Payment

Option 1: With LUT Registration

• Register as an exporter under LUT with customs
• Export services at 0% GST without prepaying IGST
• Claim ITC on inputs freely
• Less cash flow burden

Option 2: Pay IGST and Claim Refund

• Pay 18% IGST on exports initially
• File export claim and Refund Request in MIS portal
• Claim refund of IGST paid
• Delayed cash recovery

Most IT service exporters opt for LUT to avoid cash flow disruption.

Example: SaaS Export

Scenario: An Indian SaaS company provides cloud software to a US client on monthly subscription.

• Monthly subscription: USD 1,000
• GST charged to US client: 0% (zero-rated export)
• ITC on inputs: Fully claimable (electricity, software licenses, cloud services)
• Documentation: FIRC, commercial invoice, LUT registration

Place of Supply for IT Services

GST application depends on where the service is consumed, not where it is supplied from:

B2B (Business-to-Business) Supplies

Rule: Place of supply = Location of registered recipient

Application:

• If a California startup buys custom software from an Indian developer → Place of supply = California (outside India) → 0% GST
• If a Delhi company buys IT support from a Mumbai IT firm → Place of supply = Delhi → CGST + SGST (not IGST, because both are registered in India but different states)

B2C (Business-to-Consumer) Supplies

Rule: Place of supply = Location of supplier

Application:

• If an individual in Mumbai buys a software course from an online IT training platform in Bangalore → Place of supply = Bangalore → SGST of Karnataka applies
• If a foreign resident buys a software course from an Indian trainer → Place of supply = India → IGST (18%)

Foreign Clients

Rule: Supply to unregistered foreign buyers = Outside India (export) = 0% GST

Application:

• IT services supplied to a client outside India → Always 0% GST, regardless of client type

GST Registration Threshold for IT Freelancers and Startups

GST registration is mandatory if annual turnover exceeds specified thresholds:

Mandatory Registration (No Turnover Threshold)

Mandatory GST registration applies if you provide inter-state IT services, regardless of turnover:

Example:

• A freelancer in Bangalore provides software development to clients across multiple states → GST registration mandatory (even if turnover is INR 1 lakh)

Optional Registration (Within-State Supply Only)

If you provide services only within a single state:

• Turnover below INR 20 lakh: GST registration optional
• Turnover above INR 20 lakh: GST registration mandatory

Practical Implications

1. Freelancer in Delhi providing services to Delhi clients only: Registration optional until turnover crosses INR 20 lakh

2. IT startup in Bangalore providing cloud software to clients across India: Registration mandatory (inter-state supply, no threshold)

3. SaaS company with global clients: Registration mandatory (inter-state + export)

Input Tax Credit (ITC) on IT Service Inputs

IT companies can claim Input Tax Credit on eligible inputs:

Eligible Inputs for ITC

• Software licenses and subscriptions (e.g., cloud services, development tools, IDE licenses)
• Cloud infrastructure costs (AWS, Google Cloud, Azure subscriptions)
• Internet and bandwidth services
• Office equipment and laptops (used for business)
• Electricity and utilities
• Rent for office space
• Outsourced IT services (hiring freelancers or contractors with GST)
• Travel and logistics (for business purposes)

Blocked Input Tax Credits (Not Claimable)

Under Section 17 of IGST Act, ITC is blocked on:

• Personal consumption inputs (personal mobile phones, personal vehicles)
• Employee benefits (staff travel, health insurance paid by employer)
• Food and beverages (office snacks, employee meals)
• Liquor and tobacco (office hospitality)
• Vehicles used for personal purposes
• Penalty and late fee (GST penalties)

Example: ITC Calculation for IT Company

Monthly expenses for a software development company:

• AWS cloud services: INR 50,000 + 18% GST = INR 59,000
• Development software licenses: INR 20,000 + 18% GST = INR 23,600
• Office rent: INR 1,00,000 + 18% GST (if landlord is GST-registered) = INR 1,18,000

Total ITC claimable:

• AWS: INR 9,000
• Software licenses: INR 3,600
• Office rent: INR 18,000
• Total monthly ITC: INR 30,600

This ITC is set off against GST liability on IT service supplies in GSTR-3B.

Invoicing Requirements for IT Services

e-Invoicing Mandate for IT Companies

Mandatory for:

• IT companies with annual turnover > INR 5 crore
• All GST-registered persons, effective from April 1, 2023 (simplified threshold)

Requirements:

• Invoice must be generated through NEFT (National e-Invoicing System) or IRC portal
• JSON format with QR code
• IRN (Invoice Reference Number) auto-generated by the system
• Issued in real-time before supply of service

GST Invoice Content for IT Services

Every GST invoice for IT services must include:

1. Invoice number and date
2. Tax period
3. Supplier details (name, address, GSTIN, PAN)
4. Recipient details (name, address, GSTIN if B2B)
5. Description of IT service (with SAC code)
6. Service value (in INR)
7. Applicable GST rate and amount (CGST/SGST/IGST breakdown)
8. ITC eligibility (indicate if ITC is available to recipient)
9. Signature/digital sign

Export Invoice Specific Requirements

For zero-rated IT service exports, the invoice must mention:

• "Supply meant for export without payment of IGST" (or "Supply meant for export")
• FIRC reference (once payment is received)
• Foreign address of recipient
• Payment terms in foreign currency

Example Invoice Header:

INVOICE FOR EXPORT OF IT SERVICES
Supply meant for export without payment of IGST

Supplier: Indian SaaS Company Pvt Ltd, GSTIN: 27XXXXXX
Recipient: US Tech Client Inc., Address: California, USA
Service: Cloud-based accounting software (SAC 998315)
Value: USD 1,000
GST Rate: 0% (Zero-rated export)

Reverse Charge Mechanism (RCM) on Foreign SaaS

If your company subscribes to foreign SaaS (e.g., AWS, Salesforce, Google Workspace hosted abroad), Reverse Charge Mechanism (RCM) applies:

How RCM Works

1. No GST charged by foreign supplier (they are not registered in India)
2. Indian buyer (recipient) self-assesses and pays GST at 18% on the receipt of invoice
3. GST liability: Calculated on the invoice amount
4. Offset: GST paid via RCM can be claimed as ITC

RCM Invoicing

The foreign SaaS provider issues an invoice without GST. Your company then:

1. Receives the invoice
2. Issues an RCM self-assessment invoice internally (GSTR-1 entry)
3. Pays GST (18%) to the government via GSTR-3B
4. Claims the same GST as ITC

Example

Scenario: Your IT company subscribes to AWS (US-based) for INR 1 lakh per month.

• AWS invoice: INR 1,00,000 (no GST, as AWS is foreign)
• GST liability under RCM: INR 1,00,000 × 18% = INR 18,000
• Paid to government: INR 18,000
• ITC claimable: INR 18,000
• Net impact: Zero (paid GST and claimed ITC, net neutral)

Common GST Mistakes for IT Companies and How to Avoid Them

Mistake 1: Misclassifying Software (Goods vs Service)

Issue: Treating custom software development as goods (HSN 8523) instead of service (SAC 998311), leading to incorrect GST treatment.

Fix: Apply the key rule: If software is developed to a client's specific requirement = Service. Classify under appropriate SAC 9983xx code.

Mistake 2: Not Filing LUT for Exports

Issue: Exporting IT services but not registering under LUT, leading to prepayment of IGST and cash flow issues.

Fix: Register under LUT with customs and DGFT. Export at 0% GST without paying IGST upfront. Claim ITC on inputs freely.

Mistake 3: Missing ITC on Cloud Service Subscriptions

Issue: Paying GST on SaaS subscriptions (AWS, Microsoft 365) but not claiming ITC, leading to extra cost.

Fix: Cloud services are inputs for IT business. Claim full ITC on cloud subscription invoices. Track FIRC/payment proof for RCM items.

Mistake 4: Wrong SAC Code on Invoices

Issue: Using SAC 998319 (other services) instead of specific codes like SAC 998315 (SaaS) or SAC 998311 (custom development), causing audit flags.

Fix: Use the correct SAC code matching your service type. Refer to the SAC code list above and maintain consistency across invoices and returns.

Mistake 5: Invoicing Unregistered Recipient Without Collecting GST

Issue: Providing IT services to an unregistered buyer but not charging GST, creating tax liability for the supplier.

Fix: Always collect GST at the applicable rate (18% for most IT services) and deposit with the government, even if the recipient is unregistered.

Mistake 6: Treating Inter-State Service as Intra-State

Issue: Supplying IT services across states but not charging IGST, instead charging CGST+SGST only.

Fix: If your client is in a different state, the supply is inter-state. Charge IGST (18%) not CGST+SGST.

GST Compliance Checklist for IT Service Providers

Secondary Keywords & Related Queries

• GST on cloud services India
• GST on website development
• GST on digital marketing services
• RCM on imported software subscriptions
• GST on IT freelance services India
• GST registration for SaaS companies India
• SAC code for software development India
• GST rate on app development
• Export of IT services from India
• Zero-rated exports of services India

Internal Links

For related GST and IT business compliance, see:

• GST ITC Rules: Input Tax Credit Eligibility and Blocked Credits
• GST Registration: Who Needs to Register and How
• Place of Supply Under GST: B2B and B2C Services
• GST on Startups and SaaS: ITC, Exports, and Compliance
• GST Return Filing (GSTR-1, GSTR-3B): Monthly Compliance Guide

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Disclaimer: This guide is for informational purposes only. For specific compliance advice, consult a Chartered Accountant or GST consultant.

Sources:

• Notification 11/2017-CT(Rate), Ministry of Finance
• Service Accounting Code (SAC) Classification under GST
• Section 16 of IGST Act, 2017 (Zero-rating of services)
• CBIC Circular 147/3/2021 on software classification
• IGST Act, 2017, Rules 2017 (ITC provisions)