For Indian GST, an overseas supplier’s lack of GST registration does not by itself decide the tax treatment. First test whether the transaction is an import of services: the supplier must be outside India, the recipient must be in India, and the place of supply must be in India. If those conditions are met, check whether the service is covered by a current reverse-charge notification. Where reverse charge applies, the Indian recipient—not the foreign supplier—accounts for IGST, pays it in cash, reports it in the relevant return period and claims input tax credit separately if all eligibility conditions are satisfied.
This workflow is for Indian GST. The applicable place-of-supply rule, notification, rate, documentation requirement and input-tax-credit restriction must be checked for the exact service and transaction date.
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1. Start with the legal test for an import of services
The Integrated Goods and Services Tax Act treats a supply as an import of services only when all three statutory conditions are present:
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|---|---|---|
| Supplier is outside India | The contracting service provider is located outside India. | Agreement, supplier profile, invoice and payment details showing the supplier’s location. |
| Recipient is in India | Your business or other recipient receiving the service is located in India. | GST registration details, business address and contracting records. |
| Place of supply is in India | The applicable place-of-supply rule produces India as the place of supply. | Contract terms, service description, customer or property location and any documents supporting a special rule. |
If even one condition fails, the transaction is not an import of services under this definition. For example, a foreign supplier and an Indian payer are not enough if the applicable place-of-supply rule places the supply outside India. Conversely, satisfying all three conditions identifies an import of services, but it does not automatically prove that reverse charge is payable; notification coverage must be checked next.
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2. Why the foreign supplier’s unregistered status is only a trigger to investigate
Section 5(3) of the IGST Act permits the Government to notify services for which the recipient must pay IGST under reverse charge. The notified category, the service classification and the transaction date control the result. Section 5(4) separately addresses specified supplies from an unregistered supplier to a registered person when the Government has notified them. Neither provision creates a blanket rule that every foreign-vendor payment is taxable to the Indian customer.
Therefore, do not code all overseas invoices to reverse charge merely because the supplier has no Indian GSTIN. Keep a written conclusion for each recurring service—such as software access, consulting, advertising, cloud hosting or technical support—stating:
- which service was supplied;
- where the supplier and recipient are located;
- which place-of-supply rule applies and why it points to India or elsewhere;
- which reverse-charge notification covers the service, if any; and
- the rate and procedural rules applicable on the supply date.
That file lets the accounts team defend both a tax charge and a decision that no reverse charge is due.
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Step 1: Describe the service precisely
Do not rely on a bank narration such as “foreign subscription.” Obtain the statement of work, order form or contract and identify what the supplier actually performs. The same supplier can provide services with different place-of-supply outcomes or different notification treatment. Record the service period, deliverables, recipient department and whether the purchase is an expense or an asset.
Step 2: Establish the supplier and recipient locations
Confirm the foreign supplier’s establishment from the contract and invoice, and confirm the Indian recipient entity that receives the service. If a group company, branch or permanent establishment is involved, document which entity is the recipient for GST purposes. Keep the commercial invoice even when it does not contain an Indian GSTIN; it is still central evidence of consideration and invoice date.
Step 3: Determine the place of supply
Apply the place-of-supply provision that matches the service, rather than assuming the place is where the payment account is maintained. General rules may be displaced by special rules for particular services or circumstances. Record the facts that make the selected rule applicable. If the answer is uncertain, obtain a written tax position before posting recurring invoices.
Step 4: Check the current reverse-charge notification
Once the transaction meets the import definition, verify that the exact service is within a notification issued under the reverse-charge power. Check the notification’s wording, effective date, exceptions and any classification conditions. A conclusion should be tied to the transaction date because notifications and rates can change. If no notification covers the service, do not create an IGST payable entry solely from the supplier’s foreign location.
Step 5: Determine the time of supply
For reverse-charge services, the practical rule described in the applicable guidance is generally the earlier of the relevant payment event or the statutory 60-day point after the supplier’s invoice. Use the rule in force for the transaction date and preserve both dates. If the invoice date, payment date, credit-card settlement date or other payment event is unclear, resolve that ambiguity before deciding the GSTR-3B period.
Step 6: Prepare recipient-side documents
Where the rules require a recipient-issued document for a foreign, unregistered supplier, issue the self-invoice in the prescribed form and sequence. A guide describing the current procedure states a 30-day deadline under Rule 47A for documents issued from 1 November 2024. Confirm the rule’s current text, effective date and exceptions for your transaction before relying on that deadline. Also check whether a payment voucher is required for the payment pattern used, particularly where an advance is involved.
Step 7: Calculate taxable value and IGST
Start with the consideration for the service and apply the valuation rules that govern the transaction. Convert a foreign-currency amount using the prescribed conversion rule at the time of supply; keep the exchange-rate source and calculation with the tax working paper. Apply the rate notified for the service classification on that date. There is no universal percentage for all imported services, so the ledger should carry the classification and rate used rather than a generic “foreign service” code.
Step 8: Post the liability, pay in cash and report it
Recognise the service expense or asset, create the reverse-charge IGST liability and settle that liability through the electronic cash ledger. The practical workflow does not allow an existing input-tax-credit balance to substitute for the cash payment of reverse-charge tax. Report the liability in the applicable reverse-charge field of GSTR-3B for the time-of-supply period, and retain the self-invoice and calculation supporting the amount.
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After the reverse-charge tax has been paid, assess input tax credit under the ordinary rules. Confirm that the recipient has the required documentation, the service is used or intended for business, the credit is not blocked and all other statutory conditions are met. Enter eligible import-of-services credit in the designated import-services ITC field or schedule used by the current return process. If the credit is partly restricted, claim only the eligible portion and expense or otherwise account for the balance under your accounting policy.
4. How to analyze place of supply without guessing
Place of supply is often the decisive issue. Build the analysis around the service’s real features:
- What is being supplied? Distinguish a general remote service from a service tied to a specific person, event, property, intermediary activity or transport.
- Where is the relevant person, property or event? Collect customer-location, property-location or event-location evidence where a special rule could apply.
- What does the contract say? A contract can identify the recipient and deliverables, but it cannot override a mandatory statutory place-of-supply rule.
- Are there multiple recipients or establishments? Allocate the service to the Indian entity that actually receives it and document any intercompany recharge.
Do not use the supplier’s billing country, the currency, the bank’s location or the internet location of a server as a substitute for the statutory test. Those facts may support the file but do not independently determine place of supply.
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5. Time of supply: getting the reporting month right
The time-of-supply date determines when the reverse-charge liability belongs in the return. Create a date record containing at least:
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- the date on which the recipient made or was deemed to make payment;
- the date on which the 60-day statutory point falls, where relevant;
- the currency-conversion date and rate used; and
- the date of the recipient-issued document, when one is required.
Do not postpone the liability until the month in which an accounts-payable team finally notices the invoice. A prepaid annual service, a card charge and a later invoice can produce different dates, so the payment evidence and invoice chronology should be reviewed together.
6. Self-invoice and payment-voucher controls
A foreign supplier that is not registered in India generally will not issue an Indian GST tax invoice. Where recipient documentation is prescribed, the Indian recipient’s self-invoice supplies the document trail for the reverse-charge entry; it does not turn the foreign supplier into an Indian registrant. Include the supplier’s name and location, description and value of service, currency and converted value, applicable tax rate, IGST amount, relevant dates, a unique document number and the recipient’s details required by the current format.
Use a numbering series that cannot be confused with purchase invoices issued by registered Indian vendors. Link the self-invoice to the original commercial invoice, purchase order, proof of receipt and payment record. If the current rules provide an exception for a particular class of transaction, record the reason the self-invoice was not issued rather than leaving the file blank. Verify the 30-day Rule 47A timing described above against the latest rule before applying it to a new period.
7. Valuation, currency conversion and rate selection
The taxable base is normally anchored to the consideration for the service, subject to the valuation rules that apply to the transaction. A foreign-currency invoice must be translated using the prescribed GST conversion method at the time of supply. Keep the original currency amount, conversion rate, converted rupee amount and arithmetic in the voucher so that a later exchange-rate movement is not mistaken for a change in taxable value.
Select the IGST rate from the service’s current classification and notification. A software licence, professional advice, online advertising service and another digital service may not share the same classification or rate. If a rate changes between invoice and payment, determine which date controls under the applicable time-of-supply and rate rules; do not apply a standard percentage simply because it is commonly used in the ledger.
8. Journal entries and ledger design
The exact accounts depend on whether the credit is recoverable, whether the purchase is capitalised and how the enterprise records foreign-currency liabilities. A typical structure is:
| Event | Debit | Credit |
|---|---|---|
| Recognise the supplier’s service | Service expense or qualifying asset, for the converted consideration | Foreign supplier payable, for the converted consideration |
| Recognise reverse-charge IGST | Eligible input IGST under reverse charge, or expense/asset for the non-creditable portion | IGST payable under reverse charge |
| Pay the foreign supplier | Foreign supplier payable | Bank or card payable |
| Pay the GST liability | IGST payable under reverse charge | Electronic cash ledger or bank, as applicable |
| Claim eligible credit after payment | Input IGST control, if your system first parked the amount elsewhere | Relevant tax-clearing or expense account |
The second and fifth rows are system-dependent: some ERPs recognise the eligible input tax and liability together, while others hold the tax in a clearing account until the cash payment and return filing are complete. The non-negotiable controls are that the liability is visible, it is paid in cash, the return agrees with the ledger and only eligible credit is claimed.
9. Comparing common accounting outcomes
| Situation | Import test | Reverse charge | Recipient action |
|---|---|---|---|
| Foreign supplier; place of supply in India; service covered by notification | All three import conditions met | Recipient pays IGST under reverse charge | Determine time of supply, issue recipient document where required, pay in cash, report and test ITC. |
| Foreign supplier; place of supply outside India | Import definition not met | Do not infer Indian IGST solely from foreign payment | Document the place-of-supply conclusion and review any other Indian tax implications separately. |
| Foreign supplier; place of supply in India; no applicable reverse-charge notification | Import definition met | Notification coverage is not established | Do not create a reverse-charge liability without confirming the current legal basis; retain the analysis. |
| Specified supply from an unregistered supplier to a registered person under a section 5(4) notification | Apply the notification’s own conditions | Recipient liability may arise | Check the specific notification, documentation and effective date rather than treating section 5(4) as universal. |
| Reverse-charge IGST paid, but credit is blocked or conditions fail | Tax may still be payable | Cash payment remains required | Do not claim the disallowed amount as ITC; account for it according to the business’s tax and accounting policy. |
10. Return filing and reconciliation controls
Before filing the return for the relevant period, reconcile four amounts: the supplier consideration, the converted taxable value, the reverse-charge IGST payable and the eligible ITC after payment. The GSTR-3B liability field, cash-ledger payment and import-of-services ITC entry should agree with the self-invoice register.
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Use a monthly exception report for invoices that have any of these conditions:
- foreign supplier location is missing or inconsistent;
- invoice date is more than one reporting period before the accounting entry;
- payment was made by card, wallet or group company and the payment date is unclear;
- place-of-supply classification is blank;
- notification, rate or service classification is missing;
- self-invoice deadline has passed or document numbering is duplicated; or
- ITC was claimed before cash payment or without an eligibility review.
Reconcile foreign-currency revaluations separately. A later exchange difference should not silently alter the original GST working unless the applicable valuation rules require an adjustment.
11. Common mistakes and how to correct them
Mistake: treating every overseas invoice as reverse charge
Correction: Reperform the three-part import test and attach the reverse-charge notification analysis. If the place of supply is outside India or no notification applies, reverse the unsupported liability using an approved correction process.
Mistake: using the payment date without checking the 60-day rule
Correction: Put invoice and payment dates side by side, calculate the statutory 60-day point and use the rule applicable on the transaction date. Amend the return or disclose the correction through the permitted procedure when a period was missed.
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Mistake: claiming ITC as soon as the invoice arrives
Correction: Track cash payment of reverse-charge tax as a prerequisite and perform the separate business-use, documentation and blocked-credit tests before claiming the credit.
Mistake: issuing a self-invoice with the wrong date or amount
Correction: Reconcile it to the commercial invoice, conversion worksheet and time-of-supply record. Cancel and reissue duplicate or erroneous documents using a controlled audit trail; do not overwrite the original record.
Mistake: applying a familiar rate to a new service
Correction: Classify the service again and check the rate notification effective on the supply date. Escalate mixed bundles or unclear descriptions for a documented tax opinion.
Mistake: paying GST from available ITC
Correction: Restore the reverse-charge amount to the cash-payment workflow. Existing credit can be considered only after the reverse-charge tax has been paid and the separate ITC requirements are met.
12. A practical month-end checklist
- Export all foreign-supplier service invoices, card statements and advances for the period.
- Identify the Indian recipient entity and confirm the supplier’s location.
- Classify each service and apply the relevant place-of-supply rule.
- Mark whether the transaction satisfies all three import conditions.
- Check the reverse-charge notification, exceptions, rate and effective date.
- Calculate the time of supply from payment and invoice evidence.
- Prepare or verify the self-invoice and any payment voucher required by the current rules.
- Convert the consideration using the prescribed method and retain the calculation.
- Post the expense or asset, reverse-charge liability and any provisional eligible ITC.
- Pay IGST through the cash ledger, then complete the ITC eligibility review.
- Report liability and eligible import-of-services credit in the applicable return fields.
- Reconcile the return, ledgers, self-invoice register and payment challan before filing.
13. What to verify when rules change
Reverse-charge notifications, rates, return labels and procedural rules can change. At every financial year opening—and whenever a service, supplier, contract or payment method changes—reconfirm:
- the current place-of-supply provision for that service;
- whether the service remains in a notified reverse-charge category;
- the rate and classification effective on the transaction date;
- the current self-invoice and payment-voucher requirements, including the Rule 47A timing described for documents from 1 November 2024; and
- the latest ITC restrictions and return-table instructions.
Keep the version or effective date of each notification in the tax file. That qualification is important when an invoice is booked after the law changed but the service or payment occurred earlier.
14. The decision in one sentence
For an Indian business buying services from an unregistered foreign supplier, account for IGST under reverse charge only after proving an import of services, confirming a current notification covers the service and applying the correct time, value, documentation and rate rules; pay the tax in cash, report it for the correct period and claim ITC only after a separate eligibility check.
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