GST on SaaS: Place of Supply, Reverse Charge and Export Zero-Rating

Inclusive or exclusive is the clause that causes disputes

The single most common GST problem in an Indian software contract is silence. A price is agreed, an invoice arrives with tax added, and the customer says the figure was the whole amount while the supplier says it was obviously plus tax.

This is entirely avoidable. The contract should state whether the stated price is inclusive or exclusive of GST, and if exclusive, that GST will be charged additionally at the applicable rate. It costs one sentence and removes the argument.

Place of supply, in outline

Whether a supply attracts CGST and SGST or IGST depends on place of supply, determined under the IGST Act. For services, the general position turns on the location of the supplier and the recipient, with specific rules for particular categories.

For most business software supplied to a registered recipient, the place of supply follows the recipient location, which is why a Bengaluru vendor billing a Delhi customer generally charges IGST while the same vendor billing a Karnataka customer charges CGST and SGST. Getting this wrong on an invoice creates a correction exercise for both sides.

Export of services

Export of services is treated as zero-rated under the IGST Act, which is the mechanism that lets Indian SaaS companies bill overseas customers without charging Indian GST while still recovering input credit. The definition sets conditions, including that the supplier is in India, the recipient is outside India, the place of supply is outside India, and payment is received in convertible foreign exchange.

The condition founders most often overlook is the last one. Zero-rating depends on how the money actually arrives, not on what the contract says about it. A contract can record the intention, but the treatment follows the facts, and payment routed in a way that does not satisfy the condition creates a problem no drafting fixes.

Reverse charge

In specified cases the liability to pay GST sits with the recipient rather than the supplier. For Indian businesses buying software or services from an overseas supplier, this is the mechanism that commonly applies, and it means the buyer accounts for the tax rather than the foreign vendor registering in India.

The practical consequence is a compliance obligation on the buyer that is easy to miss, particularly for smaller companies buying a long tail of overseas tools on company cards. It is worth confirming with your accountant which of your subscriptions attract it.

What the contract should say

• Whether the price is inclusive or exclusive of GST, stated explicitly.
• Which party bears GST and any future change in rate.
• GSTIN of both parties, and a requirement to issue a tax invoice compliant with the rules so input credit can be claimed.
• For cross-border supply, the intended treatment and each party obligation to provide documents supporting it.
• What happens if the treatment is later challenged or reassessed, which is worth allocating rather than leaving open.

A caution

GST is detailed, category-specific and revised regularly. This article describes the shape of the questions a contract should answer. It does not tell you the correct treatment for your supply, which depends on facts including the nature of the service, the parties registration status and where they are located.

For anything cross-border or recurring, confirm the position with a chartered accountant before the first invoice rather than after the first dispute.