GST on IT and Software Services in 2026: Rates, SAC Codes, Exports, OIDAR and the Intermediary Change

India's software and IT services sector runs from one-person freelance developers to large export houses, and the GST questions are the same at every size: what rate to charge, which SAC code to use, how to bill a foreign client without paying tax, what to do about the US software you subscribe to, and how TDS fits in. This guide covers all of it for IT firms, SaaS start-ups, freelancers and the finance teams that buy their services — including the April 2026 change that finally lets intermediaries treat foreign-client work as exports. Rates and definitions were checked against the IGST Act, CBIC's service classification and the Finance Act 2026 provisions in October 2026.

Quick answer

IT and software services are taxed at 18% — development, consulting, hosting, SaaS and software licences alike (9% CGST + 9% SGST within a state, 18% IGST across states). Exports to foreign clients paid in foreign exchange are zero-rated under a Letter of Undertaking. A business buying foreign SaaS pays 18% IGST under reverse charge. From 2026, intermediary services to foreign clients can also qualify as exports.

• Software development SAC: 998314; IT consulting 998313; hosting 998315; licences 997331

• Register once turnover crosses ₹20 lakh; exports count toward it

• LUT (Form RFD-11) is valid for one financial year (1 April – 31 March) — file before the first export each year

• Income-tax TDS is on the value before GST; e-invoicing applies above ₹5 crore

GST rate and SAC codes for IT services

There is no concessional rate for IT. Every IT and software service falls into the residual rate of 18% under Notification 11/2017–Central Tax (Rate), and the September 2025 overhaul that cut hundreds of goods rates left IT services untouched. What changes from one service to another is the SAC code you print on the invoice and, sometimes, whether the supply is a service at all.

Smaller taxpayers report four-digit codes (9983, 9973, 9984) in the HSN summary of GSTR-1 and larger ones six digits. Look up any other code in our HSN code finder.

Goods or service? Licensing, downloads, SaaS and development are services under the SAC headings above. Software sold pre-packaged on a physical medium such as a DVD or USB drive can instead be a supply of goods, taxed under the goods rate schedule for its HSN — check that rate with your adviser or the HSN code finder before billing it. Bundles, such as a software licence sold with a year of support, are taxed under the rules for composite and mixed supplies. When the licence and the support naturally go together, treat them as one supply taxed at the rate of the main supply.

Who must register — and the threshold

A software business must register under GST once its aggregate turnover crosses ₹20 lakh in a year (₹10 lakh in the special-category states). Aggregate turnover includes exports and exempt supplies, so a freelancer earning ₹25 lakh entirely from overseas clients still crosses the limit. Suppliers of services making inter-state supplies are exempted from compulsory registration while below the threshold, so a small developer in Jaipur billing clients in Delhi need not register until the limit is reached.

Some businesses register earlier by choice. Large clients often insist on a GSTIN so they can claim credit, and a registered exporter can recover GST paid on laptops, software subscriptions and co-working rent through a refund. Our GST registration guide walks through the process, and exporters who receive foreign remittances usually also take an Import Export Code even though services exporters are not always required to hold one.

Place of supply: CGST + SGST or IGST

For a domestic client, the place of supply of most IT services is governed by section 12(2) of the IGST Act: the location of the recipient if it is registered; for an unregistered recipient, its address on record, or failing that the supplier's location. Compare that with your own state:

• Same state — charge 9% CGST and 9% SGST.
• Different state — charge 18% IGST.

A Pune developer billing a Mumbai client charges CGST and SGST; billing a Bengaluru client registered in Karnataka, it charges IGST. If the client has several registrations, use the GSTIN of the office that actually contracts for and receives the service, and print it on the invoice. Getting this wrong is costly: tax paid as IGST when CGST/SGST was due (or the reverse) is not adjusted; you pay the right tax and claim a refund of the wrong one.

For cross-border supplies, section 13 of the IGST Act applies. The default rule in section 13(2) is again the location of the recipient. That rule is what makes most IT exports possible.

Export of IT services: zero-rated with an LUT

Section 2(6) of the IGST Act defines export of services as a supply where:

1. the supplier is located in India;
2. the recipient is located outside India;
3. the place of supply is outside India;
4. payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI; and
5. the supplier and recipient are not merely establishments of a distinct person — for example, not a branch and its own head office abroad.

An Indian private limited company working for its foreign parent satisfies condition 5, because a subsidiary and parent are separate legal persons. A foreign company's Indian branch billing its head office does not.

Exports are zero-rated under section 16 of the IGST Act. You have two routes:

• Without paying tax, under a Letter of Undertaking (LUT). File Form GST RFD-11 on the GST portal before the first export of the year. The LUT is valid for one financial year (1 April – 31 March). Invoice without tax and claim a refund of the input tax credit that builds up, through Form RFD-01 under rule 89 of the CGST Rules.
• With payment of IGST, then claim a refund of the IGST paid. This ties up cash and is rarely used for services.

The export invoice must say "Supply meant for export of services under LUT without payment of IGST" (or with payment, as the case may be), show the client's foreign address, and be in rupees or foreign currency with the exchange rate. Keep the foreign inward remittance certificate (FIRC) or bank advice for each invoice; refunds are allowed only for payments actually received.

Is your foreign-client invoice an export?

Step 1

Supplier in India, client abroad?

both needed

Step 2

Place of supply outside India?

default: client's location

Step 3

Paid in foreign exchange?

or INR where RBI permits

Step 4

Not your own branch or head office?

separate legal persons

Step 5

Zero-rated export

invoice under LUT, no IGST

The 2026 change for intermediary services

For years, one category of IT-related work could not be exported. An intermediary — defined in section 2(13) of the IGST Act as a broker, agent or any other person who arranges or facilitates the supply of goods or services between two or more persons, but not someone supplying on their own account — had its place of supply fixed by section 13(8)(b) at the supplier's location. An Indian firm that found customers in India for a foreign software company, or coordinated vendors for an overseas client, was therefore making a supply in India and paid 18% IGST even though the client was abroad and paid in dollars.

The 56th GST Council recommended omitting section 13(8)(b), and clause 141 of the Finance Bill, 2026 did that. The clause was not among those the Bill deferred to a notified date, so it took effect when the Finance Act received assent — reported by Grant Thornton and others as 30 March 2026. Intermediary services now follow the default section 13(2) rule: the place of supply is the recipient's location.

Intermediary place of supply — how it changed

1 July 2017

Section 13(8)(b): place of supply of intermediary services = supplier's location; no export benefit

3 September 2025

56th GST Council recommends omitting section 13(8)(b)

1 February 2026

Finance Bill, 2026 introduced in Lok Sabha; clause 141 proposes the omission

30 March 2026 (reported assent date)

Omission in force; default rule — recipient's location — applies

What it means in practice:

• Indian intermediaries with foreign clients — sales agents, marketing-support providers, sourcing agents, offshore coordinators — can treat the service as an export if the other conditions in section 2(6) are met, invoice under an LUT, and claim refunds of their input tax.
• Indian businesses using foreign intermediaries — for example, a foreign agent that finds overseas customers for an Indian SaaS company — now receive an import of service, because the place of supply is in India. The Indian business pays 18% IGST under reverse charge and can usually claim it back.
• Pure software developers were never intermediaries. The definition in section 2(13) itself excludes a person who supplies services on its own account, such as a developer building software for a client. The change matters mainly for agency, facilitation and back-office arrangements that were previously caught.

Review contracts with foreign group companies, renew your LUT, and check whether past disputes over intermediary classification still matter: the omission applies from its commencement, so demands for earlier periods were not automatically withdrawn.

Buying foreign SaaS and cloud services: OIDAR and reverse charge

Almost every Indian business now pays for overseas software — cloud hosting, design tools, CRM, video calls. GST treats these as imports of services, and two sets of rules apply depending on who is buying.

Registered business buyers pay under reverse charge. When a GST-registered business buys software, cloud or other services from a supplier outside India, it is liable to pay IGST of 18% IGST under reverse charge (section 5(3) of the IGST Act read with the reverse-charge notification). The tax is paid in cash through GSTR-3B Table 3.1(d) and claimed as credit in Table 4A(2) in the same return, so the net cost is usually nil — but only if you remember to pay it. Our reverse charge guide shows the entries.

Unregistered buyers are charged by the foreign supplier. Online information and database access or retrieval (OIDAR) services are defined in section 2(17) of the IGST Act as services delivered over the internet whose supply is impossible without information technology — including cloud services, internet advertising, software and e-books delivered online, data storage and online gaming. Since 1 October 2023 (Finance Act 2023), the definition no longer requires the service to be "essentially automated", and a non-taxable online recipient means any unregistered person in India receiving OIDAR services. A foreign OIDAR provider selling to such recipients must register in India under the simplified scheme and pay 18% IGST itself. That is why individuals and small freelancers see GST added on many app and software subscriptions.

If you are registered but the foreign provider charges you GST anyway because you didn't give your GSTIN, you cannot claim credit on that invoice in the normal way. Add your GSTIN to the account settings so the provider stops charging GST and you pay reverse charge instead.

TDS and GST TDS on IT invoices

Two separate deductions can hit an IT invoice.

Income-tax TDS. Payments for technical services, professional services and software are covered by the provisions that were section 194J of the Income-tax Act, 1961 and, from 1 April 2026, sit in section 393 of the Income-tax Act, 2025 with the same rates and thresholds. Fees for technical services carry 2% and professional fees 10%, once the payments to a vendor cross ₹50,000 in a year. CBDT Circular 23/2017 says TDS is deducted on the amount excluding GST when GST is shown separately on the invoice. Show GST as a separate line and your client's TDS will be lower. Our TDS guide has the full table and the new form numbers.

GST TDS by government buyers. Central and state government departments, local authorities and specified public bodies deduct GST TDS of 2% (1% CGST + 1% SGST, or 2% IGST) from payments to suppliers when the value of a contract exceeds ₹2.5 lakh, under section 51 of the CGST Act. It is calculated on the value before GST. The deducted amount appears in your electronic cash ledger once the deductor files GSTR-7 and you accept it. See TDS under GST for the mechanics.

Worked invoices

1. Domestic, same state. A Pune software firm builds an inventory app for a Mumbai distributor for ₹5,00,000. Place of supply: Maharashtra. Invoice: ₹5,00,000 + CGST ₹45,000 + SGST ₹45,000 = ₹5,90,000. The client deducts TDS at 2% on ₹5,00,000 — ₹10,000 — and pays ₹5,80,000.

2. Domestic, different state. The same firm hosts and maintains a Bengaluru retailer's website for ₹40,000 a month. Place of supply: Karnataka. Invoice: ₹40,000 + IGST ₹7,200 = ₹47,200 a month, SAC 998315 for hosting or 998316 for managed services.

3. Export under LUT. The firm develops a module for a US client for $12,000, received through its bank. All five export conditions are met. The invoice shows the dollar value and the rupee equivalent at the exchange rate on the invoice date, the note "Supply meant for export of services under LUT without payment of IGST", and nil GST. The firm's input tax on laptops and software subscriptions for the month — say ₹60,000 — can be claimed as a refund of unutilised credit.

4. Foreign SaaS under reverse charge. A Delhi start-up registered for GST pays a US cloud provider the rupee equivalent of ₹1,20,000 for a month's hosting (illustrative figure). It pays IGST of ₹21,600 under reverse charge in GSTR-3B and claims ₹21,600 as input tax credit in the same return. Net GST cost: nil; cash timing: paid and recovered in the same return.

5. Intermediary after the 2026 change. A Kochi company earns a 10% commission — ₹8,00,000 for the quarter — from a German software publisher for finding Indian customers. Before 30 March 2026 the place of supply was Kerala and the company paid ₹1,44,000 IGST. For services after that date, the place of supply is Germany, the commission is received in euros, and the company invoices it as a zero-rated export under its LUT.

Try it — 18% GST on a software invoice

Sales (Add GST)Purchase (Remove GST)Price Comparison

AmountGST Rate

0%3% (Gold / silver)5%18% (Standard)40% (Sin / luxury)

Transaction Type

Intra-state (CGST + SGST)Inter-state (IGST)

Base Amount (Before GST)₹5,00,000.00

CGST (9%)₹45,000.00

SGST (9%)₹45,000.00

Total GST (18%)₹90,000.00

Total Amount (Including GST)₹5,90,000.00

Open the full GST Calculator (PDF, save, compare)

Compliance checklist for IT businesses

IT services GST checklist

0/7

• Register once aggregate turnover, including exports, crosses ₹20 lakh
• Print the right SAC (998314 development, 998313 consulting, 998315 hosting, 997331 licences)
• File the LUT in Form RFD-11 before the first export each financial year
• Keep FIRC or bank advice for every export invoice; claim refunds of unused credit
• Pay reverse charge on foreign SaaS and cloud bills; give providers your GSTIN
• Show GST separately so clients deduct TDS on the pre-GST value
• Generate e-invoices once turnover exceeds ₹5 crore

Share Print

E-invoicing is mandatory for any business whose aggregate turnover in any year since 2017-18 exceeded ₹5 crore; exports and B2B invoices must then carry an IRN. Read our e-invoice guide for the process.

Common mistakes and how to fix them

Charging GST on exports. If the five conditions are met and you hold a valid LUT, an export invoice should carry no GST. Charging IGST to a foreign client who cannot claim it simply makes you uncompetitive. If you forgot to file the LUT, file it before the next export and take advice on invoices already issued without it.

Treating every foreign-currency receipt as an export. If the place of supply is in India — for example, on-site services performed on goods or at an event in India — the supply is not an export even if the client pays in dollars.

Missing reverse charge on foreign software. This is the most common audit finding for start-ups. The credit usually offsets the tax, but missed reverse charge attracts interest at 18% a year and the credit may be time-barred if claimed late.

Calling a developer an intermediary — or the reverse. Before 2026, departments sometimes classified back-office and development work for foreign group companies as intermediary services to deny export status. With section 13(8)(b) gone, that argument fades for later periods, but correct classification still matters for earlier disputes.

Using the wrong state's tax. Bill the GSTIN of the client office that receives the service, and charge IGST or CGST/SGST accordingly.

Official links

• GST portal — LUT (Form RFD-11) and refunds (RFD-01)Services → User Services → Furnish Letter of Undertaking
• IGST Act, 2017 (consolidated)Sections 2(6), 2(13), 2(16), 2(17), 12, 13
• Finance Bill, 2026Clause 141 — omission of section 13(8)(b)
• Scheme of Classification of Services (SAC list)Headings 9983, 9973, 9984
• 56th GST Council recommendations (PIB)Intermediary place-of-supply recommendation

What to do next

Set up your invoice templates with the right SAC codes and tax split using the invoice generator, file your LUT before the next export, and list every foreign software subscription so reverse charge is paid each month. If you sell through agents abroad or act as one, revisit those contracts in light of the 2026 intermediary change. For credit rules on laptops, software and office costs, read our input tax credit guide, and check TDS on client payments with the TDS calculator.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the GST rate on IT services?

IT and software services — custom development, IT consulting, hosting, managed services, SaaS subscriptions and software licences — are taxed at 18%: 9% CGST plus 9% SGST within a state, or 18% IGST between states. GST 2.0 in September 2025 did not change the rate. Exports that meet the five export conditions are zero-rated.

What is the SAC code for software development?

Software development is SAC 998314 (information technology design and development services). IT consulting and support is 998313, hosting and infrastructure provisioning 998315, infrastructure and network management 998316, and other IT services 998319. Licensing the right to use software is 997331, and software downloads are 998434.

Is GST charged on export of software services?

No, if the supply qualifies as an export: the supplier is in India, the client is outside India, the place of supply is outside India, payment comes in convertible foreign exchange (or rupees where RBI permits), and the two are not establishments of the same person. Exports are zero-rated; file a Letter of Undertaking in Form RFD-11 to export without paying IGST.

Do I pay GST on a foreign SaaS subscription?

Yes. A GST-registered business buying software or cloud services from a supplier abroad pays 18% IGST under reverse charge and claims it back as input tax credit if eligible. An unregistered buyer, such as an individual or a freelancer below the threshold, is charged GST by the foreign provider, which must register in India as an OIDAR supplier.

What changed for intermediary services in 2026?

The Finance Act, 2026 omitted section 13(8)(b) of the IGST Act, which had fixed the place of supply of intermediary services at the supplier's location. Intermediary services now follow the default rule — the recipient's location — so an Indian agent or facilitator serving a foreign client can treat the supply as an export if the other conditions are met.

Is TDS deducted on the GST amount of an IT invoice?

No. CBDT Circular 23/2017 says income-tax TDS is deducted on the amount excluding GST where GST is shown separately. On a ₹1,00,000 invoice plus ₹18,000 GST, TDS at 2% for technical services is ₹2,000. Government buyers also deduct GST TDS at 2% (1% CGST + 1% SGST, or 2% IGST) on contracts above ₹2.5 lakh.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Integrated Goods and Services Tax Act, 2017 (consolidated copy) — Maharashtra GST Department · accessed 9 October 2026
2. 2.Finance Bill, 2026 — clause 141 and commencement clause — Ministry of Finance (India Budget) · accessed 9 October 2026
3. 3.Memorandum explaining the provisions of the Finance Bill, 2026 — Ministry of Finance (India Budget) · accessed 9 October 2026
4. 4.Recommendations of the 56th Meeting of the GST Council — PIB, Ministry of Finance · accessed 9 October 2026
5. 5.Scheme of Classification of Services (Annexure to Notification 11/2017-CT(Rate)) — CBIC · accessed 9 October 2026
6. 6.CBDT Circular No. 23/2017 — TDS on the GST component — CBDT (copy hosted by ITATonline) · accessed 9 October 2026
7. 7.GST on intermediary services: legislative reset through Finance Act, 2026 — Grant Thornton Bharat · accessed 9 October 2026
8. 8.Intermediary services: new place of supply rules effective 30 March 2026 — TaxGuru · accessed 9 October 2026