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

Is the price inclusive or exclusive of GST?

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. On a ₹10 lakh annual contract at 18%, that is a ₹1.8 lakh argument.

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. Wording such as 'All fees are exclusive of GST, which shall be charged in addition at the rate applicable on the date of supply' does the job.

How does place of supply work for SaaS?

Whether a supply attracts CGST and SGST or IGST depends on place of supply, determined under the Integrated Goods and Services Tax Act, 2017. Section 12 applies where both supplier and recipient are in India; Section 13 applies where either is outside India. For services, the general rule under Section 12 is that the place of supply to a registered person is that person's location, with specific rules for particular categories.

For most business software supplied to a registered recipient, the place of supply therefore follows the recipient. That 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, and the customer's input tax credit can be held up until it is fixed.

The common scenarios side by side

The table illustrates the usual outcome for a ₹1,00,000 SaaS invoice at 18%, assuming the standard rules apply and no special category is involved.

When is SaaS an export of services?

Export of services is a zero-rated supply under Section 16 of the IGST Act, which is the mechanism that lets Indian SaaS companies bill overseas customers without charging Indian GST while still recovering input tax credit. Under Section 2(6), a supply is an export of services only if all five conditions are met: the supplier is located in India; the recipient is located outside India; the place of supply is outside India; payment is received in convertible foreign exchange, or in Indian rupees where permitted by the Reserve Bank of India; and the supplier and recipient are not merely establishments of the same person.

The conditions founders most often overlook are the last two. Zero-rating depends on how the money actually arrives, not on what the contract says. A contract can record the intention, but the treatment follows the facts. And billing your own overseas branch is not an export, because a branch is an establishment of the same person; a separately incorporated foreign subsidiary is treated differently.

Zero-rated exports can be made without paying IGST under a letter of undertaking filed each financial year, or with payment of IGST followed by a refund claim. Most SaaS exporters use the letter of undertaking route, which avoids blocking cash in refunds.

A worked example

A Pune SaaS company has three customers: a Pune manufacturer paying ₹6 lakh a year, a Chennai retailer paying ₹4 lakh, and a Singapore company paying the equivalent of ₹8 lakh in Singapore dollars into the company's bank account in India.

The Pune invoice carries CGST and SGST of ₹54,000 each. The Chennai invoice carries IGST of ₹72,000. The Singapore invoice carries no GST if the company has filed its letter of undertaking for the year and every export condition is met; the company still claims input tax credit on its own costs, such as cloud hosting, which it uses for the export.

Now suppose the Singapore customer asks to pay through its Indian affiliate in rupees to save on conversion charges. The money now comes from within India in a way RBI may not treat as an export receipt, and zero-rating may fail. The company would then owe IGST of ₹1,44,000 that it never charged. A clause requiring payment from the contracting customer in foreign currency, and making the customer bear tax if it pays otherwise, prevents that.

Watch for the intermediary rule

If your Indian company does not supply the software itself but arranges or facilitates supplies between a foreign principal and its customers, for example as a reseller agent or a support intermediary, older contracts and advice will refer to Section 13(8)(b) of the IGST Act. That clause placed intermediary services at the location of the supplier, which is India, so GST was payable even though the client was abroad and paid in foreign currency.

The Finance Act, 2026 omitted Section 13(8)(b), so intermediary services now generally follow the default rule, under which the place of supply is the location of the recipient. Export treatment then becomes possible, but only if every Section 2(6) condition is met. Supplies made before the change may still be argued over, so if past invoices were treated one way or the other, take advice. Where a group structure has an Indian entity providing development or support to a foreign parent, the contract should still describe accurately what is supplied and to whom, because the export conditions follow the facts.

How does reverse charge apply to overseas software?

In specified cases the liability to pay GST sits with the recipient rather than the supplier. For an Indian business buying software or services from an overseas supplier, this is the mechanism that commonly applies: the buyer pays IGST under reverse charge rather than the foreign vendor registering in India.

The tax is generally available as input tax credit if the software is used for taxable business supplies, so it is often cash-flow neutral in the same return period. But it has to be paid and reported. The practical risk is for smaller companies buying a long tail of overseas tools on company cards: design tools, hosting, analytics, communication apps. Each is an import of services, and missing reverse charge creates interest and penalty exposure. It is worth confirming with your accountant which of your subscriptions attract it.

Withholding tax on payments to foreign vendors is a separate income-tax question, and section references have changed under the Income-tax Act, 2025, so check it separately.

A simple control helps: ask your finance team to tag every foreign currency card payment and overseas invoice each month, check whether reverse charge applies, and record it in the GST return for that period. On ₹50,000 a month of overseas subscriptions, the reverse charge liability is ₹9,000 a month, small enough to be missed and large enough to add up, with interest, over a few years.

What does the customer need for input tax credit?

A business customer can usually claim GST charged on SaaS as input tax credit, but only if the paperwork lines up. In outline, it needs a valid tax invoice showing its correct GSTIN and the right tax type, the supplier must have reported the invoice in its returns so that it appears in the customer's auto-generated statement, and the customer must have received the service. If the supplier charges IGST where CGST and SGST were due, or reports late, the credit is delayed or denied until corrected.

That is why the contract should oblige the supplier to issue compliant invoices, report them on time, and correct errors promptly, with the customer able to withhold the tax portion of payment until a defective invoice is fixed.

What should the contract say?

• Whether the price is inclusive or exclusive of GST, stated explicitly.
• Which party bears GST and any future change in rate or classification.
• GSTIN and place of business of both parties, so the place of supply can be determined.
• A requirement to issue a tax invoice compliant with the rules and report it on time, so the customer's input tax credit is not blocked.
• For cross-border supply, the intended treatment, the currency and route of payment, and each party's obligation to provide supporting documents.
• What happens if the treatment is later challenged or reassessed, including who bears tax, interest and penalty.
• For foreign vendors, whether the price is net of any withholding tax, which affects the true cost.

A caution

GST is detailed, category-specific and revised regularly, including through rate rationalisation and amendments to the place of supply rules. This guide 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, where they are located and how payment flows.

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