With the rapid expansion of the digital economy, Information Technology (IT) services have become an integral part of business operations. The Goods and Services Tax (GST) regime brought a unified tax structure, but also introduced specific rules for IT and software services.
Under GST, IT services typically include:
👨💻 Software development and programming
☁️ Cloud computing and SaaS
🌐 Web hosting and domain services
📱 App development and maintenance
🧑💼 IT consulting and support services
🔐 Cybersecurity and IT infrastructure management
These are categorized as "supply of services" under the GST framework.
| Type of IT Service | GST Rate | Input Tax Credit (ITC) |
|---|---|---|
| Custom software development | 18% | ✅ Allowed |
| SaaS (Software-as-a-Service) | 18% | ✅ Allowed |
| IT consulting | 18% | ✅ Allowed |
| Cloud storage and web hosting | 18% | ✅ Allowed |
| Off-the-shelf packaged software (downloaded) | 18% | ✅ Allowed |
| Pre-loaded software on hardware | 18% (on software) + applicable GST on hardware | ✅ Allowed |
| Maintenance and AMC of software | 18% | ✅ Allowed |
Services provided to a foreign client
Payment received in foreign currency
Place of supply is outside India
✅ Such services are zero-rated under GST (i.e., 0% GST)
✅ Refund of Input Tax Credit (ITC) can be claimed
Considered “Goods”
GST rate: 18%
Considered “Services”
GST rate: 18%
🧾 Regardless of the mode, most software-related transactions attract 18% GST.
When IT services are procured from a vendor outside India:
💸 Reverse Charge Mechanism (RCM) applies
Recipient must pay 18% GST
✅ ITC can be claimed later, making it tax-neutral for businesses
Example: Paying for cloud services from AWS, Microsoft Azure, or Google Cloud.
Businesses with turnover exceeding ₹20 lakhs (₹10 lakhs in special states)
Anyone providing inter-state services (mandatory registration)
Exporters (for claiming zero-rated benefit and ITC refunds)
🔄 File monthly returns (GSTR-1, GSTR-3B)
📤 Report export invoices and foreign currency payments
💳 Pay RCM on imported digital services
🧾 Maintain contracts, agreements, and payment proofs for exports
🛡️ Cybersecurity and data processing services also attract 18% GST
🏢 IT services provided to SEZ units are zero-rated
🌐 Services sold via online platforms or aggregators may involve platform compliance
The GST framework for IT services is relatively straightforward but requires meticulous compliance:
✅ 18% GST is the standard rate for almost all IT services
🌏 Exports of IT services are zero-rated and eligible for ITC refund
🔁 Reverse charge applies on imports of IT services
📊 Proper invoicing, documentation, and registration are essential for availing tax credits and avoiding penalties
As India’s digital economy grows, tax clarity and global compliance are key to scaling IT businesses effectively under the GST regime.
Created & Posted By Mayank Saini