SaaS and software throw up GST questions that a normal product business never faces: is your product goods or a service? Which state’s tax applies when the customer is in another city — or another country? And here’s the one most Indian founders miss entirely: you probably owe GST on the foreign tools you subscribe to. This guide covers how SaaS is classified and taxed, place-of-supply for domestic and cross-border sales, how to export your software GST-free, the reverse-charge you owe on foreign SaaS, and the OIDAR rules for overseas providers selling into India.
At a glance
- SaaS is a service, not goods — taxed at 18% under SAC 998314, regardless of how it’s delivered.
- Place of supply = the customer’s location. Same state → CGST + SGST; different state → IGST.
- Selling to foreign customers is zero-rated (0%) — file an LUT to bill without IGST and still claim input-credit refunds.
- Buying foreign SaaS? A registered Indian business must pay 18% IGST under reverse charge on those subscriptions (Slack, AWS, HubSpot, etc.) — then claim it back as credit.
- Foreign SaaS firms selling to Indian consumers must register under the OIDAR rules and charge GST.
- Position for FY 2026-27. Confirm the exact treatment for your contract and place of supply before billing.
Is your SaaS goods or a service?
This used to be genuinely contested, but the position is now settled: software delivered electronically — SaaS, cloud products, custom development, downloadable licences — is a service, not goods. It is taxed at 18%, and your invoice carries a SAC (Services Accounting Code) rather than an HSN:
| What you supply | SAC | GST |
|---|---|---|
| SaaS & software development | 998314 | 18% |
| IT support & maintenance | 998313 | 18% |
| Web / app hosting & cloud infrastructure | 998315 | 18% |
| Other IT services | 998319 | 18% |
So whether you sell a monthly subscription, a one-time licence, or a custom build, the rate is 18% — split 9% CGST + 9% SGST for a customer in your own state, or 18% IGST for a customer elsewhere.
Domestic sales: which state’s tax applies?
Because SaaS is an online service with no special place-of-supply exception, the place of supply is the location of the recipient (Section 12(2), IGST Act). In practice:
- Customer in your own state → charge CGST + SGST (9% + 9%).
- Customer in another state → charge IGST (18%).
- For business customers, capture their GSTIN so the place of supply (and their input-credit) is correct; for individuals, use their address.
Selling to foreign customers: export your software GST-free
When your customer is outside India, the sale is an export of service and is zero-rated (0% GST) under Section 16 of the IGST Act — provided it meets the five export conditions of Section 2(6): you’re in India, the recipient is abroad, the place of supply is outside India, payment comes in convertible foreign exchange, and you and the customer aren’t merely two arms of the same entity.
You then have two options, exactly as for any service exporter:
- LUT route (recommended): file a Letter of Undertaking (Form RFD-11) once each financial year and invoice at 0% — no IGST tied up in working capital. Refile before 1 April each year.
- Pay-and-refund route: charge IGST and claim it back later.
Because the supply is zero-rated (not exempt), you keep full input tax credit on your costs and can claim a refund of it. (For the full mechanics, see our guide on place of supply for service exporters.)
Buying foreign SaaS: the reverse charge you probably owe
This is the rule that catches most Indian startups. When a registered Indian business subscribes to a foreign SaaS or cloud tool — and the provider doesn’t charge Indian GST — you are importing a service. Under the reverse-charge mechanism (Section 5(3), IGST Act) the liability shifts to you, the buyer:
- You must pay 18% IGST on the subscription value under RCM.
- You raise a self-invoice for the import, and pay the tax in your GSTR-3B.
- If the tool is used for your business, you then claim that IGST back as input tax credit — so it’s usually cash-neutral, but skipping the entry is a genuine compliance gap that surfaces in audits.
In short: those AWS, Slack, Notion, HubSpot or Google Workspace bills paid to a foreign entity carry an RCM obligation you must record, even though the credit largely washes it out.
If you’re a foreign SaaS firm selling into India (OIDAR)
The flip side is the OIDAR regime (Online Information Database Access and Retrieval) for overseas providers. Since the Finance Act 2023 (from 1 October 2023), the definition was widened — the “minimal human intervention” test and the purpose-of-use carve-out were removed — so automated products like SaaS, cloud storage, CRM, analytics and productivity apps clearly fall within OIDAR. The compliance split:
- Selling to a registered Indian business (B2B): no need to register — the Indian recipient accounts for GST under RCM (above).
- Selling to Indian consumers / unregistered persons (B2C): the foreign provider must register in India (simplified route under Section 14, IGST Act / Form GST REG-10, with an Indian representative) and charge GST, regardless of turnover.
Input tax credit on your own tools
Registered SaaS businesses can offset the GST paid on genuine business inputs — cloud/hosting, developer tools, domestic SaaS subscriptions, laptops, co-working — against the GST they collect (and, for exporters, claim it as a refund). The usual Section 17(5) blocks still apply: no credit on personal expenses, food and beverages, club memberships, or motor vehicles.
Common mistakes to avoid
- Treating SaaS as goods or hunting for an HSN — it’s a service at 18% under a SAC.
- Charging CGST + SGST to an out-of-state customer instead of IGST (or vice-versa) — place of supply is the customer’s location.
- Charging IGST on foreign-customer invoices without an LUT, blocking cash unnecessarily.
- Ignoring RCM on foreign SaaS bills — the self-invoice + GSTR-3B entry is mandatory even though you reclaim the credit.
- Letting the LUT lapse on 1 April, losing zero-rating on exports made after expiry.
Frequently asked questions
Q: What GST rate applies to SaaS in India? A: 18% — SaaS is a service (SAC 998314), split as CGST+SGST within a state or IGST across states.
Q: My customer is in another state — CGST/SGST or IGST? A: IGST. Place of supply is the customer’s location, so an inter-state B2B sale is IGST.
Q: Do I charge GST to overseas customers? A: No. Export of SaaS is zero-rated if the Section 2(6) conditions are met — file an LUT to bill at 0%.
Q: I pay for AWS/Slack from India — is there GST? A: Yes. As a registered business you owe 18% IGST under reverse charge on imported SaaS, via a self-invoice in GSTR-3B, and you then claim it as input credit.
Q: I’m a foreign SaaS company with Indian users — must I register? A: For B2C (unregistered users) yes, under the OIDAR rules. For B2B (registered businesses), the Indian buyer handles GST under RCM instead.
Q: Can I claim GST on the tools I use to build my product? A: Yes, on genuine business inputs; exporters can claim it as a refund. Personal, food, club and vehicle expenses remain blocked.
Invoice your SaaS the right way
Our free GST Invoice Generator handles the SaaS split automatically — pick the customer’s state and it applies CGST + SGST or IGST at 18%, with your SAC code on every invoice, and an export-ready format for foreign clients. For multi-currency SaaS billing, it can invoice in the buyer’s currency while keeping your reports in INR. Free to use, no sign-up needed to start.