GST on Software Services in India: Rates, SAC Codes and Export Rules

Software services in India attract a standard 18% GST when the customer is in India, and 0% when the service is exported to a client outside India. The domestic 18% is charged as 9% CGST plus 9% SGST within a state, or 18% IGST across states, and it applies whether you sell custom development, a SaaS subscription, consulting, hosting or maintenance. Because an export of services is treated as a zero-rated supply under Section 16 of the IGST Act, an Indian exporter charges no GST on foreign invoices and can still recover the tax paid on business inputs.

That single distinction, domestic versus export, decides most of what you owe. If you sell your services abroad and want the payment side to stay clean while you claim that benefit, cross-border payments for service exporters is where the tax rule and the money flow meet.

This guide covers the rate, the SAC and HSN codes, how exports are zero-rated, the reverse charge on imported software, and the invoice and compliance steps that keep the benefit intact.

The rate is 18% across the board for domestic supply, so the code you pick rarely changes the tax. It changes your paperwork and your input-credit trail, which is why a wrong SAC is what usually triggers questions at assessment.

The rate is 18%. As of 2026, the September 2025 GST rate rationalisation reduced the general structure to two main slabs, 5% and 18%, plus a 40% special slab, and IT and software services stayed at 18% (the standard rate for IT services under SAC 9983). There is no concessional rate and no composition option for software.

How the 18% splits depends on where your customer sits:

• Same state as you: 9% CGST + 9% SGST.
• Different state: 18% IGST.
• Outside India: 0%, as a zero-rated export (covered below).

Registered software businesses can claim full input tax credit on laptops, cloud spend, subscriptions, rent and internet, so the effective burden usually sits well below 18%.

Software services fall under heading 9983 in the Scheme of Classification of Services. The useful sub-codes are:

• 998313 for IT consulting, support and annual maintenance contracts.
• 998314 for IT design and development, which covers most custom software, web and app work.
• 998315 for hosting and IT infrastructure provisioning, including SaaS and cloud.
• 998316 for IT infrastructure and network management.
• 998319 for other IT services that do not fit the codes above.

Pre-packaged, off-the-shelf software supplied on physical media is treated as goods under HSN 8523, also at 18%. The practical dividing line is simple: built to a customer’s specification is a service, while off-the-shelf sold as a product is goods.

SaaS accessed over the web is a service. Getting this right on the invoice matters more for your input-credit record than for the rate, since both land at 18%.

No. When you provide software services to a client outside India, the supply is zero-rated under Section 16 of the IGST Act, so the GST rate is 0%. You do not charge GST on the foreign invoice, and you keep the right to claim a refund of the input tax credit tied to that export. This is the core reason export of services under gst is a genuine advantage for Indian software exporters rather than a loophole.

Zero-rating is not the same as an exemption. An exempt supply blocks input credit, while a zero-rated supply preserves it. You get to the 0% outcome in one of two ways:

• Export under a Letter of Undertaking (LUT): file Form RFD-11 once a year, invoice at 0% GST, and claim a refund of accumulated input credit. No tax is blocked upfront.
• Export with payment of IGST: pay 18% IGST on the export invoice, then claim a full cash refund from the GST portal.

Most software exporters choose the LUT route because it avoids blocking working capital. If you are weighing the two, LUT vs IGST refund sets out the cash-flow trade-off. Supplies to a Special Economic Zone unit are treated the same zero-rated way; SEZ compliance has its own documentation.

Zero-rating only holds if the transaction meets all five conditions of an "export of service" under Section 2(6) of the IGST Act:

• 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 INR where the RBI permits it.
• The supplier and recipient are not merely establishments of the same person.

Condition four is where the payment mechanics start to matter for tax, not just for banking. Realising the money in foreign currency, with proof, is what lets you defend the 0% claim.

The rule flips when you buy. When an Indian business subscribes to foreign software or cloud services, from AWS, Azure, Adobe, Atlassian or similar, the import of service falls under the reverse charge mechanism (RCM). You self-assess and pay 18% IGST directly to the government, then claim it back as input credit in the same period if the tool is used for business.

This is the item Indian software companies most often miss, because no supplier is charging them GST. The practical steps to recover it sit in how to claim itc in gst.

The tax rule and the money flow are connected. To hold a zero-rated export claim, you need the inward remittance realised in foreign currency and evidenced, and your export data reflected in the RBI’s monitoring systems. Three things follow from that:

• A Foreign Inward Remittance Advice or Certificate. Your bank issues the FIRC (Foreign Inward Remittance Certificate), and it is the standard proof that payment came in as foreign exchange. It also underpins any refund claim, which is why firc for gst refund is worth setting up before your first export invoice.
• The right purpose code. Software services usually map to RBI purpose code P0802 for software implementation and consultancy. The code tags why the money arrived and feeds compliance reporting.
• Export declaration. Where applicable, softex filing and STPI reporting record the software export against the payment.

This is the layer where a purpose-built receiving setup earns its place. Xflow issues an automatic eFIRA on settlement and works with AD-1 banks so the FIRC and downstream compliance stay intact, settlements land the next business day (T+1), and conversions use the live mid-market rate (MMR) rather than a marked-up bank rate. As of February 2026 Xflow holds final Payment Aggregator Cross Border (PA-CB) authorisation from the RBI for both exports and imports, so the receiving flow is a regulated one, not a workaround.

Software exporters feel this most on the FX spread. TeachEdison, an EdTech company selling test-prep software abroad, cut cross-border costs by 4× against PayPal and Payoneer and by 60% against SWIFT after moving to a transparent receiving flow.

• Forgetting to file the LUT before exporting. Without it, you must pay 18% IGST and claim it back, blocking cash you did not need to block.
• Missing the reverse charge on foreign SaaS. Unpaid RCM on AWS or Adobe subscriptions is a frequent assessment finding.
• Misclassifying packaged software as a service, or the reverse. It rarely changes the rate, but it disturbs your input-credit trail.
• Treating a zero-rated export as exempt. Exempt blocks input credit; zero-rated preserves it. The wording on your returns matters.
• Weak proof of foreign-exchange realisation. No FIRC or an incorrect purpose code can stall a refund.

A compliant invoice carries a unique sequential number, the issue date, your and the client’s details with GSTINs where applicable, the correct SAC code, the taxable value, the 18% GST split into CGST and SGST or IGST, and the total.

For an export invoice, you replace the tax lines with an endorsement that the supply is a zero-rated export made under LUT without payment of IGST, and you state that payment is receivable in convertible foreign exchange. If your turnover crosses the e-invoicing threshold, the same rules apply through the IRP, covered in e invoicing under gst. Exports are then reported in your GSTR-1 for export of services.

Solo software professionals below the registration threshold have a slightly different path; gst for freelancers covers when a GSTIN becomes necessary.

Numbers make the rule concrete. Compare two identical ₹10,00,000 software projects, one billed to an Indian client and one exported to a US client.

For the domestic client, you add 18% GST. The invoice reads ₹10,00,000 plus ₹1,80,000 GST, so the client pays ₹11,80,000. You then remit that ₹1,80,000 to the government, net of the input credit you have already claimed.

For the US client, the supply is a zero-rated export, so you add no GST. The invoice reads ₹10,00,000, while you still recover the input tax credit on the laptops, cloud and rent that went into the work. That recovery is exactly why zero-rated beats exempt.

The 18% is not your cost in either case, because a registered business passes it on or recovers it. What the export treatment removes is the 18% cash you would otherwise collect and remit, which helps keep your foreign pricing competitive. The zero-rated route offers a real edge on price, because you are not adding 18% that a foreign buyer cannot recover.

Two questions usually settle a tricky case: where the recipient sits, and whether you are registered. The place of supply for most software and IT services follows the recipient’s location, which is what lets a Bengaluru developer treat a New York client as an export and a Mumbai client as an inter-state supply.

• When the recipient is outside India and payment arrives in foreign exchange, the supply is generally an export at 0%.
• When the recipient is in another Indian state, you charge 18% IGST.
• When both parties sit in the same state, you split the 18% into CGST and SGST.

A worked case helps. Suppose a freelancer earns ₹15 lakh from a US client and ₹8 lakh from Indian clients in a year. The ₹8 lakh domestic income needs a GSTIN because it crosses the ₹20 lakh aggregate-turnover test when combined with the export income, while the ₹15 lakh export stays zero-rated under an LUT. The threshold looks at total turnover, so export income counts toward it even though it carries no GST.

Domestic software services carry 18% GST under SAC 9983; exports carry 0% as a zero-rated supply, provided you file the LUT and realise payment in foreign exchange with the right documentation. Register once turnover crosses ₹20 lakh (₹10 lakh in special-category states), or earlier if you make inter-state supplies or want to export under LUT.

Get the SAC code, the LUT and the FIRC in place, watch the reverse charge on foreign tools, and the tax side of a software export stays straightforward. For the payment side, an IT-enabled services receiving setup keeps the compliance trail and the FX cost working in your favour.

This guide is general information, not tax advice. For your specific classification and filings, confirm with a qualified chartered accountant.