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1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minuteShort answer: An Indian GST-registered business that imports a qualifying SaaS service from a foreign supplier generally pays the applicable IGST under reverse charge. The usual import-of-services test requires a supplier outside India, a recipient in India and a place of supply in India. A foreign supplier generally handles GST itself when it supplies qualifying OIDAR to a non-taxable online recipient. Paying in Indian rupees, using an overseas server or receiving an invoice without Indian GST does not by itself remove the tax analysis.
The exact result depends on the contract, the service actually delivered, the recipient’s GST status and whether a reseller or intermediary is involved. The workflow below shows how to classify, calculate, document and report the subscription without assuming that every digital product has the same treatment.
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The decision in one view
Start with the parties and the service, not the currency or the location of the software’s servers. Use the following as a first-pass map, then verify the statutory details for the transaction.
| Transaction | Usual GST route | What to verify |
|---|---|---|
| Foreign supplier contracts directly with a GST-registered Indian business for software or cloud access | Indian recipient generally pays applicable IGST under reverse charge | Import test, place of supply, service classification, recipient’s GST registration and credit eligibility |
| Foreign supplier provides qualifying OIDAR directly to a non-taxable online recipient in India | Foreign supplier generally bears the special OIDAR compliance and payment obligation | Whether the customer is a non-taxable online recipient and whether the service is OIDAR |
| Indian reseller, marketplace or other intermediary appears in the chain | Cannot be assumed from the direct-subscription example | Contracts, invoicing flow, agency or intermediary characterization and each party’s location |
| Indian supplier invoices the subscription | Ordinary domestic GST rules generally apply instead of an import-of-services reverse-charge analysis | Supplier’s registration, invoice and the actual supply |
The legal framework is the Integrated Goods and Services Tax Act. Imported services are treated as inter-State supplies, so the relevant tax is IGST rather than a split of CGST and SGST.
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What makes a foreign SaaS subscription an import of services?
The three statutory conditions
Section 2(11) of the IGST Act defines an import of services through three cumulative conditions:
- The supplier is located outside India.
- The recipient is located in India.
- The place of supply is in India.
If any one of those conditions is not met, the transaction may not be an import of services, although another GST rule can still apply. Establishing all three requires looking at the customer named in the agreement, the entity that receives the service and the applicable place-of-supply provision. The IGST Act is the controlling source; a vendor’s billing portal is not.
Place of supply is usually the recipient’s location
For cross-border services, section 13 generally uses the recipient’s location, subject to listed exceptions. For a straightforward subscription bought by an Indian business for its own operations, that commonly points to India. Server location, the country of the app’s data centre and the currency displayed at checkout do not automatically displace the statutory rule.
OIDAR services have a specific recipient-location rule and a special mechanism for supplies to non-taxable online recipients. A subscription that includes software access, cloud computing, online database access, digital content or support may need to be separated into its actual components before the place-of-supply and classification analysis is complete.
Currency does not decide liability
CBIC’s Sectoral FAQs answer a question about foreign software purchased for use in a GST-registered firm and state: “The factum of which currency was used to pay the consideration is immaterial.” In practical terms, paying in Indian rupees does not by itself turn a foreign supply into a domestic supply or eliminate reverse charge. The same caution applies to payments in US dollars, euros or any other currency. See the CBIC Sectoral FAQs.
Choose the correct recipient route
GST-registered Indian business
When a registered Indian business obtains a qualifying service directly from a foreign supplier, the recipient generally accounts for applicable IGST under reverse charge. CBIC’s FAQ gives this answer for foreign software and for online database access obtained from abroad: “The recipient, if registered, has to pay the applicable IGST on reverse charge basis.”
Reverse charge changes who remits the tax; it does not make the supply tax-free. The foreign vendor’s invoice may contain no Indian GST, yet the Indian recipient can still have an IGST liability. The recipient should record the liability in its GST books and pay it through the prescribed return process.
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Non-taxable online recipient receiving OIDAR
The special OIDAR rule applies when a foreign supplier provides qualifying online information and database access or another OIDAR service to a non-taxable online recipient in India. In that route, the overseas supplier is generally responsible for registration, charging and paying the tax under the applicable rules. The IGST Act and CBIC’s registration rules set out the framework.
The GST Council’s material for its 54th meeting describes overseas cloud services supplied directly to unregistered Indian end users as subject to GST at the overseas provider’s hand, while registered Indian recipients account under reverse charge. That distinction is between recipient categories, not a blanket exemption for all unregistered buyers. Review the customer’s status and the service’s OIDAR characteristics before applying it.
Resellers, marketplaces and intermediaries
A SaaS subscription bought through an Indian reseller or a marketplace is not automatically equivalent to a direct foreign subscription. The contract may create an Indian supply, a foreign supply with an agent, or an intermediary service. The IGST Act contains a distinct place-of-supply rule for intermediary services, and the invoicing chain can change who is the supplier and who is the recipient.
Collect the order form, master service agreement, invoice, terms of use and any reseller agreement. Identify which entity promises the service, collects the consideration, handles support and bears contractual liability. Do not apply the direct-import answer until those facts have been resolved.
Step-by-step accounting procedure
1. Identify the contracting parties
Write down the legal name and address of the supplier, the Indian entity named as customer, the entity that will use the account and the customer’s GSTIN. A group may have several Indian companies; the GST treatment follows the contracting and receiving entity, not merely the employee who logs in.
Check whether the supplier is actually outside India. A familiar brand name or a foreign website does not establish the supplier’s legal location. Use the supplier’s agreement, tax information, invoice and payment instructions together.
2. Describe what was purchased
Read beyond the product label. Record whether the consideration buys hosted software access, cloud infrastructure, online database retrieval, downloadable software, digital content, implementation, consulting, training, support or several items bundled together. The service classification can affect the rate and whether a special OIDAR rule is relevant.
If a bundle has separately priced or separately identifiable components, preserve that breakdown. If it is one inseparable supply, obtain a defensible classification from the contract and the applicable rate materials rather than selecting a rate because the checkout page says SaaS.
3. Establish the place of supply
Apply section 13 of the IGST Act to the service identified in step 2. For the general rule, the recipient’s location is decisive. Check the statutory exceptions, including rules that can apply to intermediary services and the specific rule for OIDAR supplied to non-taxable online recipients.
Document why the Indian entity is the recipient: for example, the Indian GSTIN appears on the order, the Indian company controls the account and the service is used in its business. Those facts are more useful than relying on an IP address or the country where a server is hosted.
4. Select the rate from the classification
CBIC’s Sectoral FAQs state that the rate of GST on IT services is 18%, and the official rate material includes 18% entries for relevant service headings. Treat 18% as the commonly relevant rate for a qualifying IT or SaaS service, not as an automatic rate for every online subscription. Confirm the applicable service classification and the current notification before posting the liability. The official references are the CBIC Sectoral FAQs and CBIC GST Goods and Services Rates.
5. Create the recipient-side documents
CBIC states that a registered person procuring a service from outside India must issue a self-invoice on the date of receipt. The document should contain the particulars required by the current law and rules, identify the foreign supplier and describe the imported service. Keep the foreign vendor invoice with it; a self-invoice is not a replacement for the commercial invoice.
When paying the foreign supplier, CBIC also states that a payment voucher is required at the time of payment. Coordinate the voucher with the bank advice, card statement or other payment evidence so the amount, date, supplier and currency conversion can be reconciled.
6. Calculate and pay IGST under reverse charge
Apply the confirmed rate to the taxable value under the applicable valuation rules. Convert foreign-currency amounts using the prescribed GST exchange-rate method and retain the rate used. Do not silently substitute the card issuer’s exchange rate if the GST rules require another method.
Illustration only: if a qualifying subscription has a taxable value of ₹100,000 and the confirmed rate is 18%, the reverse-charge IGST is ₹18,000. The illustration does not establish that every SaaS invoice is taxable at 18%; classification and valuation must be confirmed first.
7. Report the supply for the correct period
CBIC says the self-invoice or other required document should be reported in the GST return for the month in which the supply takes place. Align the accounting period, date of receipt, self-invoice date, payment date and return period. If a subscription is prepaid for a longer term, ask whether the supply is received at once or over the subscription period and apply the current time-of-supply rules to the facts.
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8. Test input tax credit separately
Paying IGST under reverse charge and recovering that tax as input tax credit are separate decisions. Test whether the recipient is entitled to credit, whether the subscription is used in the course or furtherance of business, whether the self-invoice and payment records are complete, whether the tax has been paid and whether any blocked-credit restriction applies under the CGST Act.
A business-use label on the invoice is not a guarantee. For a shared account, personal use, exempt activity or mixed business, document the allocation and obtain advice on the applicable restriction. None of the general guidance in this article promises credit for a particular company.
Illustrative calculation and bookkeeping
The following example shows the mechanics only. Assume a foreign supplier invoices an Indian GST-registered company ₹100,000 for a service that has been confirmed as a qualifying imported IT service and classified at 18%.
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| Item | Illustrative amount | Accounting point |
|---|---|---|
| Vendor consideration | ₹100,000 | Record the supplier invoice and the valuation support |
| IGST under reverse charge at 18% | ₹18,000 | Recipient recognises the tax payable to the government |
| Total economic outflow before any credit treatment | ₹118,000 | Includes the vendor payment and tax remittance, subject to accounting presentation |
| Potential input tax credit | Not automatic | Depends on eligibility, use, documentation and statutory restrictions |
A typical ledger design separates the foreign SaaS expense, reverse-charge IGST payable and any eligible input-tax-credit ledger. The exact debit and credit presentation depends on the company’s accounting policy and whether credit is available. Reconcile the tax payable ledger to the return and bank payment rather than netting the liability against the vendor expense without support.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Records to retain
Keep a transaction file that allows another person to reconstruct the import test, tax calculation and payment. At minimum, include:
- Master subscription agreement, order form and current terms of service.
- Foreign supplier’s legal name, address, tax details and invoice.
- Evidence of the Indian recipient’s GST registration and the entity using the account.
- Description of each service component and the classification or rate analysis.
- Evidence supporting the recipient’s location and the place-of-supply conclusion.
- Self-invoice issued on receipt, with the required particulars.
- Payment voucher issued when the foreign supplier is paid.
- Bank advice, card statement or remittance record and the foreign-exchange conversion used.
- Reverse-charge calculation, tax payment proof and return reconciliation.
- Input-tax-credit eligibility analysis, including business-use allocation where relevant.
Retention periods and electronic-record requirements follow the current GST law and the company’s record policy. The CBIC Sectoral FAQs explain the self-invoice, return-reporting and payment-voucher points; use the current rules for exact form and retention details.
Cases that need extra care
Cloud infrastructure versus a software licence
Infrastructure capacity, a hosted application, a licence to download software and online database access can have different contractual descriptions. Do not assume that a cloud invoice is automatically OIDAR or that a downloadable licence is automatically outside the import rules. Read the deliverables and identify the service actually received.
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Implementation, migration, configuration, training and consulting may be supplied alongside the recurring subscription. Determine whether the contract treats them as separate services or one bundled supply, and classify each component where the facts require it. A single 18% assumption for the entire invoice can be wrong if the bundle contains differently classified services.
Indian group companies sharing one account
If one Indian company signs the contract and other group entities use the account, document who receives the service and how costs are allocated. A recharge, cross-charge or separate supply between Indian entities can create an additional GST question that is distinct from the original foreign subscription.
Foreign supplier paid through a card or payment platform
Payment processing does not change the identity of the supplier. Preserve the underlying vendor invoice and contract even when the card statement names a payment processor. If the processor or platform is contractually the supplier, analyse that arrangement instead of treating the statement description as conclusive.
Unregistered business customer
An unregistered customer is not automatically outside GST. First ask whether it is a non-taxable online recipient receiving qualifying OIDAR, in which case the foreign supplier’s special obligation may apply. If the customer is not within that category, the supply chain and current law need a separate analysis.
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- Assuming no Indian GST on the vendor invoice means no tax. Correct it by running the import-of-services test and checking reverse charge.
- Treating INR payment as a domestic transaction. Correct it by applying the statutory supplier, recipient and place-of-supply rules; currency is not decisive.
- Using the server country as the place of supply. Correct it by documenting the recipient-location rule and any applicable exception.
- Applying 18% to every digital subscription without classification. Correct it by identifying the service and checking the current rate entry.
- Confusing an unregistered online consumer with a registered business. Correct it by determining whether the OIDAR special rule applies and who must remit the tax.
- Skipping the self-invoice or payment voucher. Correct it by issuing the required documents on receipt and payment, then reconciling them to the return.
- Claiming input tax credit automatically. Correct it by testing business use, documentation, payment and blocked-credit provisions separately.
- Ignoring a reseller or intermediary. Correct it by tracing the contractual and invoicing chain before selecting the tax route.
A repeatable monthly control workflow
- Extract every foreign SaaS, cloud and online-database payment from the accounts-payable and card reports.
- For each vendor, confirm the legal supplier, Indian recipient, GSTIN and contract owner.
- Tag the service description and flag bundles, resellers, marketplaces and intermediary language.
- Apply the import test and place-of-supply rule; record the conclusion and supporting clause.
- Confirm the classification and current rate, retaining the source used.
- Prepare the self-invoice on receipt and the payment voucher when payment is made.
- Calculate reverse-charge IGST, post the ledger entries and arrange payment.
- Report the document and liability in the return for the correct month.
- Run a separate input-tax-credit review and retain the eligibility evidence.
- Reconcile vendor invoice, self-invoice, voucher, bank payment, ledger, return and tax-payment proof.
This control is especially useful when subscriptions renew automatically, because a recurring card charge can otherwise bypass the self-invoice and reverse-charge review.
Quick Recap
Official references
- CBIC: Integrated Goods and Services Tax Act — import definition, place-of-supply provisions and OIDAR framework.
- CBIC: Sectoral FAQs — foreign software, online database access, currency, self-invoice, payment voucher and the 18% IT-services statement.
- CBIC: Registration — registration route relevant to overseas OIDAR suppliers.
- CBIC: GST Goods and Services Rates — official service-rate entries.
- GST Council: 54th GST Council Meeting — discussion of overseas cloud services to unregistered end users and reverse charge for registered recipients.
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