India is home to the world's fastest-growing ecosystem of software product engineering, SaaS founders, custom dev shops, and IT consultancies. However, navigating the Goods and Services Tax (GST) framework presents unique legal questions for tech entrepreneurs: Do you need GST if your clients are overseas? How do SAC codes work for cloud computing? Can you reclaim GST paid on AWS, Google Workspace, and MacBooks?
This comprehensive guide details everything Indian IT companies, dev agencies, and tech startups need to know regarding GST registration, statutory thresholds, Letter of Undertaking (LUT) filings, Reverse Charge Mechanism (RCM) on foreign SaaS, and input tax credit optimization in 2026.
1. Is GST Registration Mandatory for IT & Software Companies?
Under the Central Goods and Services Tax (CGST) Act, the mandatory threshold for service providers is an aggregate turnover exceeding ₹20 Lakhs in a financial year (₹10 Lakhs for special category northeastern/hill states). However, specific conditions trigger mandatory GST registration irrespective of turnover:
- Cross-Border Export of Services: If you deliver software development, UI/UX design, or SaaS solutions to clients outside India and receive convertible foreign exchange (via Stripe, PayPal, Wise, or direct SWIFT Wire transfer), registration is mandatory to execute zero-rated supply without paying 18% IGST upfront under an LUT.
- Inter-State Client Billing: Providing services to domestic corporate clients located outside your home state requires regular GST registration under Section 24 of the CGST Act.
- Reverse Charge Mechanism (RCM) Liability: If your company imports cloud services, APIs, or foreign software subscriptions from overseas vendors not registered under Indian OIDAR rules, you are mandated to register and remit tax under RCM.
- Opening a Corporate Current Account: Scheduled commercial banks in India enforce mandatory GST registration or Udyam Registration to complete enterprise KYC for IT business entities.
💡 Pro Tip for Bootstrapped IT Startups
Even if your domestic revenue is under ₹20 Lakhs, voluntarily registering for GST enables you to claim 100% Input Tax Credit (ITC) on hardware purchases (laptops, monitors, networking gear) and commercial office rent, effectively reducing startup capital expenditure by 18%.
2. SAC Codes & GST Rates for Software & IT Services
Services under GST are classified using Service Accounting Codes (SAC). All information technology, cloud hosting, and software programming services fall under Chapter 9983 and attract a standard rate of 18% GST (9% CGST + 9% SGST for intra-state supplies, or 18% IGST for inter-state supplies).
| SAC Code | Service Description | Applicable GST Rate |
|---|---|---|
| 998311 | Information technology management & consulting services | 18% |
| 998312 | IT systems analysis, design, and software architecture | 18% |
| 998313 | IT infrastructure provisioning and network management services | 18% |
| 998314 | IT design and custom software development services | 18% |
| 998315 | Hosting and IT infrastructure provisioning services (Cloud SaaS/IaaS) | 18% |
| 998316 | IT infrastructure data storage and cloud backup services | 18% |
| 998319 | Other information technology services n.e.c. (QA, DevOps, Cyber) | 18% |
3. Export of Software Services: Zero-Rated Supply & LUT Filing
Under Section 16 of the IGST Act, the supply of services outside India is categorized as a Zero-Rated Supply. An IT service qualifies as an "Export of Service" when all 5 conditions of Section 2(6) of the IGST Act are fulfilled:
- The supplier of service is located in India.
- The recipient of service is located outside India.
- The place of supply of service is outside India (as per Section 13).
- Payment for such service has been received in convertible foreign exchange or in Indian Rupees wherever permitted by RBI (such as FIRC / e-BRC).
- The supplier and recipient are not merely establishments of a distinct person.
How to Bill Foreign Clients Without Charging 18% GST (Letter of Undertaking)
To invoice international clients without collecting 18% IGST, your IT company must file a Letter of Undertaking (LUT - Form GST RFD-11) annually on the GST portal before issuing foreign invoices. Filing the LUT takes 5 minutes and remains valid for the entire financial year (April 1 to March 31). In your invoice, clearly specify: "SUPPLY MEANT FOR EXPORT UNDER LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX."
⚠️ Warning: Maintain FIRC / BRC Documents
During GST audit or refund processing, tax authorities mandate Foreign Inward Remittance Certificates (FIRC) or Electronic Bank Realisation Certificates (e-BRC) issued by your AD Code bank to prove foreign currency receipt. Retain these advice slips for every export payment.
4. Reverse Charge Mechanism (RCM) on Foreign SaaS Subscriptions
Modern software development agencies subscribe to international developer toolchains: Amazon Web Services (AWS), Google Cloud Platform (GCP), GitHub, Figma, Vercel, Atlassian Jira, and OpenAI API keys. When foreign service providers invoice your company without Indian GST numbers:
- The transaction is classified as an Import of Service.
- The Indian IT recipient is legally responsible for self-assessing and paying 18% IGST under RCM in Table 3.1(d) of Form GSTR-3B.
- 100% ITC Recovery: The entire amount paid under RCM is simultaneously claimed back as Input Tax Credit in Table 4(A)(2) of the same month's GSTR-3B, resulting in zero net cash outflow.
5. Input Tax Credit (ITC) Rules for IT Companies
IT companies can offset the GST paid on legitimate business purchases against taxes collected from domestic clients, or claim a cash refund of unutilized ITC accumulated through export operations. Eligible ITC categories include:
- Developer Hardware & Capital Goods: Laptops (MacBooks, ThinkPads), servers, network routers, monitors, and workstation furniture (18% to 28% GST).
- Cloud Hosting & Software Licenses: Domain names, SSL certificates, IDE subscriptions, Slack, Zoom, and Indian SaaS tools.
- Telecommunication & Internet: Leased line fiber connections, mobile postpaid business connections (18% GST).
- Office Rent & Co-working Spaces: Commercial lease agreements and WeWork/Awfis membership fees (18% GST).
- Professional Legal & Audit Fees: Chartered Accountant, company secretary, and legal retainers.
🚫 Ineligible / Blocked ITC under Section 17(5)
GST paid on food and beverages for employees, corporate gym memberships, executive health insurance (unless statutory), and passenger motor vehicles (under 13 seating capacity) cannot be claimed as ITC.
6. Documents Required for IT Company GST Registration
The documentation requirements depend on your business structure:
| Entity Type | Mandatory Documents |
|---|---|
| Private Limited / OPC | Certificate of Incorporation, Company PAN, MOA & AOA, Board Resolution, Director PAN/Aadhaar, Registered Office Electricity Bill + Rent Agreement/NOC, Cancelled Cheque. |
| LLP / Partnership | LLP Agreement / Partnership Deed, Firm PAN, Partner PAN & Aadhaar, Authorization Letter, Office Electricity Bill + NOC, Bank Statement / Cancelled Cheque. |
| Sole Proprietorship | Proprietor PAN & Aadhaar, Passport photo, Office Electricity Bill / Municipal Tax Receipt + Owner NOC / Rent Agreement, Cancelled Cheque with proprietor name. |
Frequently Asked Questions
Is GST registration mandatory for software companies exporting services to US/EU clients?
Yes. While export of software services qualifies as a zero-rated supply under Section 16 of the IGST Act, GST registration is legally mandatory to claim zero-rated status and file a Letter of Undertaking (LUT), regardless of whether your annual turnover is below the ₹20 Lakh threshold.
What is the standard GST rate and SAC code for custom software development?
The standard GST rate for IT and software development services is 18%. The primary Service Accounting Code (SAC) is 998314 for IT design and development services, and 998313 for IT infrastructure and network management services.
What is a Letter of Undertaking (LUT) in GST for IT companies?
A Letter of Undertaking (LUT - Form GST RFD-11) is an online declaration filed annually on the GST portal. It allows IT exporters and SaaS founders to invoice international clients without paying the 18% IGST upfront, preserving working capital without waiting for tax refund processing.
Do IT companies need to pay GST under RCM on foreign cloud services like AWS, Google Cloud, or GitHub?
Yes. When an Indian business imports cloud hosting or SaaS tools from overseas suppliers (OIDAR services) without Indian GST charged on the invoice, the Indian IT company must pay 18% IGST under Reverse Charge Mechanism (RCM) in GSTR-3B and can subsequently claim 100% ITC in the same month.
Can an IT startup claim Input Tax Credit (ITC) on laptops and office hardware?
Yes. Indian IT companies can claim 100% Input Tax Credit on capital goods (laptops, MacBooks, servers, monitors), internet bills, co-working space rent, and business software subscriptions against their outward tax liabilities or accumulated refund balance.
What documents are required for an IT Private Limited company to get GST registration?
Key documents include: Certificate of Incorporation (COI), PAN card of the company, MOA/AOA, PAN and Aadhaar of all Directors, Board Resolution authorizing signatory, registered office proof (Electricity bill + NOC/Rent agreement), and bank account proof (cancelled cheque).
Can software companies opt for the GST Composition Scheme?
Generally, no. Service providers under Section 10(2A) can only opt for the 6% presumptive scheme if their turnover is under ₹50 Lakhs AND they do not make any inter-state or export supplies. Since virtually all IT companies service clients across state borders or globally, they must register under the Regular GST scheme.
How long does it take to obtain a GST number for a new software agency?
With Aadhaar authentication of the authorized signatory, GST registration is typically approved by the GST officer within 3 to 7 working days. If physical verification or query clarification is requested, it may take 10 to 14 days.