GST on software and IT services in India is charged at 18% (9% CGST + 9% SGST for intra-state; 18% IGST for inter-state; 0% for export of services under LUT), classified under SAC 998313 (IT consulting and support), SAC 998314 (IT design and development), SAC 998315 (hosting and infrastructure), and HSN 8523 (packaged software on physical media). The rate is prescribed under Notification No. 11/2017-Central Tax (Rate), read with the CGST Act, 2017, and the IGST Act, 2017.
The September 2025 GST 2.0 reform simplified India’s tax slabs to a two-rate structure (5% and 18%) plus a special 40% slab. IT and software services remained at 18%. Still, the reform extended export benefits for intermediary services by shifting the place-of-supply rule to the recipient’s location.
This guide covers GST for software and IT services in 2026-27, applicable rates, SAC code selection (and why getting it wrong triggers client ITC rejection), the critical distinction between software-as-service and software-as-goods after the TCS v. Andhra Pradesh judgment, export of services under Section 2(6) of the IGST Act (with all five conditions), LUT filing for zero-rated exports, GST treatment for SaaS, cloud computing, OIDAR services from foreign providers, and ongoing compliance for IT startups, freelancers, and SaaS companies.
Key Takeaways
- GST on software and IT services in India is 18% — applied as 9% CGST + 9% SGST (intra-state), 18% IGST (inter-state), or 0% (export under LUT).
- Primary SAC codes: 998313 (IT consulting), 998314 (IT design and development), 998315 (hosting), 998316 (network management), 998319 (other IT services). Packaged software on physical media uses HSN 8523.
- Registration threshold: ₹20 lakh aggregate turnover (₹10 lakh in Manipur, Mizoram, Nagaland, Tripura). For exporters, registration is effectively mandatory regardless of turnover since exports are inter-state supplies.
- Export of services qualifies for 0% GST under Section 2(6) of the IGST Act when all five conditions are satisfied (Indian supplier, foreign recipient, foreign place of supply, payment in convertible forex, not same-person establishments).
- LUT is mandatory for exporting without IGST payment — filed annually via Form GST RFD-11 on gst.gov.in.
- September 2025 GST 2.0 reform simplified slabs; intermediary services place-of-supply shifted to recipient’s location, expanding export eligibility for sales/marketing/support functions.
- OIDAR rules apply to foreign software companies serving Indian customers; they must register and collect GST under Section 14 of the IGST Act.
- One-year payment rule: If a foreign payment doesn’t arrive within 1 year for an LUT-exported invoice, the exporter must pay IGST with interest under Rule 96A(1)(b).
What is the GST Rate for Software Services?
The standard GST rate for software services is 18%. This single rate covers almost everything an IT business does: custom software development, SaaS subscriptions, website and mobile app development, cloud hosting, IT consulting, and annual maintenance contracts.
The September 2025 GST 2.0 reform simplified India’s tax slabs into two main rates, 5% and 18%, plus a special 40% slab for luxury and sin goods. Professional and business services, including IT, fall under the 18% standard slab. The GST rate on software services and the GST rate on IT services did not change after the reform; both remain 18%.
The GST rate for software development services is 18% under SAC 998314, and software consultancy without development sits under 998313, also at 18%. Whether you call it consultancy, development, or implementation, the rate holds steady.
GST on Software Services vs Software Sold as Goods
GST classifies software either as a service or as goods, depending on how you deliver it:
- Software as a service: Custom development, SaaS, and downloadable software delivered electronically are services. You use a SAC code and charge 18%.
- Software as goods: Packaged or “canned” software sold on a physical CD, DVD, or USB is treated as goods. It carries HSN 8523 and is also taxed at 18%.
The Supreme Court drew this line in the Tata Consultancy Services v. State of Andhra Pradesh case. The Court held that branded software copied onto physical media and sold off the shelf becomes goods, even though the developer keeps the copyright.
The rate is 18% either way, but the classification changes your invoice fields, place-of-supply rules, and return filing. Knowing the distinction is crucial for software businesses to keep their client’s Input Tax Credit (ITC) claim accurate.
GST Treatment for SaaS (Software as a Service) Companies
SaaS subscriptions are treated as a supply of services under GST, never as goods, regardless of how they’re delivered. Indian SaaS companies face 18% GST under SAC 998314 (development) or SAC 998313 (consulting), with these specific rules:
B2B SaaS to Indian Customers (Intra-state or Inter-state)
| Customer Location | GST Treatment |
|---|---|
| Same state as a SaaS company | 9% CGST + 9% SGST (total 18%) |
| Different state | 18% IGST |
| SEZ unit (with valid LUT) | 0% (zero-rated supply) under Section 16 of the IGST Act |
B2B SaaS to Foreign Customers
Treated as export of services if all 5 conditions of Section 2(6) of IGST Act are met → 0% GST under LUT, with full ITC refund eligibility.
B2C SaaS (Selling to Indian Consumers)
Same as B2B Indian customers, 18% GST applies. SaaS companies must collect and remit GST on each subscription transaction.
Time of Supply for SaaS Billing
Under Section 13 of the CGST Act, the time of supply for SaaS subscriptions is the earlier of:
- Date of issue of invoice (or due date if invoice not issued within 30 days), OR
- Date of receipt of payment
For annual subscriptions billed upfront, GST is payable in the month the invoice is issued, even if the service is consumed over 12 months. This affects working capital for SaaS companies with annual contracts.
ITC Eligibility for SaaS Buyers
Indian businesses purchasing SaaS subscriptions (from Indian providers) can claim 18% as Input Tax Credit on their business expenses, provided the invoice carries the SaaS provider’s GSTIN, the correct SAC code, and the buyer’s GSTIN.
SAC Code for Software Services in GST (Distinction Between HSN or SAC)
Under GST, services are classified using SAC (Services Accounting Codes), while goods use HSN codes. Under Rule 46 of the CGST Rules, the SAC is a mandatory field, and the wrong code can cause your client’s ITC to be rejected.
People often search for the “HSN code for software services in GST” or a “GST code for software services”, and the correct answer is a SAC code under group 9983. Ensure that you use the right SAC code on every invoice.
Key SAC Codes for IT and Software Services
The following SAC codes commonly apply to software and IT services under the 18% GST slab:
| SAC Code | Service Description | GST Rate |
|---|---|---|
| 998313 | IT consulting and support services | 18% |
| 998314 | IT design and development services (including software & website development) | 18% |
| 998315 | Hosting and IT infrastructure provisioning services | 18% |
| 998316 | IT infrastructure and network management services | 18% |
| 998319 | Other IT services not elsewhere classified | 18% |
| HSN 8523 | Packaged software on physical media (treated as goods) | 18% |
A Tip: if you design or build software, use 998314. If you only advise or provide support without development, use 998313. Precision protects you during a GST audit.
GST for IT Services in India: Who Must Register?
GST registration is not automatic for everyone. Here’s who should apply for GST for IT services in India:
- Domestic services only: Registration is mandatory once your annual turnover crosses ₹20 lakh (₹10 lakh in special category states).
- Exporters: If you serve overseas clients, registration is effectively compulsory regardless of turnover, because exports are interstate supplies under the IGST Act. You also cannot file a Letter of Undertaking or claim refunds without it.
Many freelancers and small studios register voluntarily anyway. It lets them access zero-rated exports and reassures enterprise clients during onboarding.
GST for Export of Software Services: The Big Advantage
When you provide software development, SaaS, or IT consulting to a client outside India, the supply is treated as a zero-rated supply. In plain terms, you charge 0% GST while still claiming input tax credit on your business expenses. That gives a genuine competitive edge for Indian software exporters.
But remember the key warning: a foreign client paying you does not, by itself, make the service an export. To qualify as an export of services under Section 2(6) of the IGST Act, all the conditions mentioned must hold:
- The supplier is in India,
- The recipient is abroad,
- The place of supply is outside India,
- Payment arrives in convertible foreign exchange, and
- The two parties are not merely establishments of the same person.
Worked Example: Qualifying as Export of Services
Scenario: A Bengaluru-based freelance developer (Indian taxpayer) provides a custom software development service to a New York-based startup, receives USD 25,000 (₹20.75 lakh equivalent) via bank wire transfer, and the developer’s GSTIN is registered separately from any US presence.
Testing all 5 conditions of Section 2(6) of the IGST Act, 2017:
| Condition | Status | Reason |
|---|---|---|
| 1. Supplier in India | ✅ | The developer is registered in Bengaluru |
| 2. Recipient outside India | ✅ | The New York startup is the recipient |
| 3. Place of supply outside India | ✅ | Under Section 13(2) of the IGST Act, the place of supply is the recipient’s location (USA) |
| 4. Payment in convertible foreign exchange | ✅ | USD 25,000 received via wire transfer |
| 5. Supplier and recipient are not establishments of the same person | ✅ | Two separate legal entities |
Result: This qualifies as an export of services = zero-rated supply.
Action required by developer: File LUT in Form GST RFD-11 for the FY before invoicing → Issue export invoice with “Export of Services under LUT without payment of IGST” note → Receive ₹20.75 lakh in full → Claim refund of ITC on business expenses (Adobe subscriptions, AWS, laptop, internet) via Form GST RFD-01.
Critical timing: If the payment doesn’t arrive within 1 year of the invoice date, IGST becomes payable with 18% per annum interest under Rule 96A(1)(b) of the CGST Rules. The developer must monitor payment receipts and trigger a backup IGST payment if the 1-year deadline approaches without payment.
Latest Update in the September 2025 Reform: The sourcing rule for intermediary services shifted to the recipient’s location. This expands export benefits for sales, marketing, and certain support functions that earlier struggled to qualify.
How to Keep Your Software Services Export Zero-Rated in GST?
You have two routes for GST for the export of software services:
- File an LUT (preferred): Submit a Letter of Undertaking in Form RFD-11 once each financial year. Then, invoice without charging IGST, adding the note “Export of services under LUT without payment of IGST.”
- Pay IGST and claim a refund: Charge IGST, then file for a refund later. This blocks your cash and involves scrutiny, so most exporters avoid it.
The LUT route is simpler and protects your cash flow. Keep one rule in mind: if payment for an LUT invoice does not arrive within one year, you must pay IGST with interest. Keep your e-FIRA/FIRC, contracts, and return acknowledgments filed neatly.
OIDAR Services: GST Treatment for Foreign Software Providers
OIDAR (Online Information and Database Access or Retrieval) services are defined under Section 2(17) of the IGST Act, 2017, as services whose delivery is essentially automated and involves minimal human intervention. This includes:
- Cloud-based software subscriptions (Adobe Creative Cloud, Figma, Canva Pro)
- Streaming services (Netflix, Spotify, foreign OTT platforms)
- Online advertising (Google Ads, Meta Ads from foreign entities)
- Digital downloads (e-books, software, music)
- Cloud storage services (Dropbox, certain Google Cloud, and AWS services)
- SaaS platforms delivered to Indian customers from abroad
When Foreign Providers Must Register Under OIDAR
Under Section 14 of the IGST Act, 2017, foreign service providers supplying OIDAR services to non-business recipients in India (B2C) must:
- Obtain GST registration in India through the simplified OIDAR registration process
- Charge IGST at 18% on the supply
- File monthly GSTR-5A returns
When OIDAR Doesn’t Apply (RCM Instead)
If the foreign provider supplies OIDAR services to a business recipient in India (B2B) without an Indian GSTIN, the Indian business pays IGST under the Reverse Charge Mechanism (RCM) under Section 5(3), the foreign provider doesn’t need to register.
Practical Implications for Indian IT Businesses
Indian SaaS startups, IT consultants, and freelancers using foreign platforms (Figma, Adobe, AWS without an Indian GSTIN) face RCM liability under Section 5(3) on those subscriptions, regardless of their own turnover threshold. This is the single most-missed compliance area for Indian IT professionals.
How to Calculate GST on Software Services
Here’s the formula to calculate GST on software and IT services:
GST = Cost of Service × 18%
If you invoice a domestic client ₹1,00,000, you add ₹18,000 GST, for a total of ₹1,18,000. For intra-state, this splits as 9% CGST and 9% SGST; for inter-state work, charge 18% IGST.
For a qualifying export under LUT, you charge ₹0 GST while still recovering ITC on your costs.
Registration is only the start. Once registered, you must file GSTR-1 and GSTR-3B regularly, even in months with zero income as nil returns, to dodge late fees. Missed filings invite penalties and can freeze your e-way bills and refunds.
GST applicability may vary depending on business structure, transaction type, and contractual arrangements. Consult a qualified GST professional before making tax decisions. If returns feel overwhelming, our GST returns filing service keeps you compliant while you focus on building.
If you are starting out, our team at RegisterKaro can handle your GST registration end-to-end so you avoid early mistakes. Fill the form to get a free consultation now!
