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GST on SaaS exports: is your sale zero-rated?

Selling software from India to a customer abroad is probably an export of services, and so zero-rated, if it meets all five conditions in section 2(6) of the IGST Act. You can then supply under a Letter of Undertaking (LUT, Form GST RFD-11) without paying IGST up front. If any condition fails, 18% GST likely applies. Not tax advice: ask your CA before you rely on it.

Facts checked

1. Is your business located in India?

You, the seller, supply the software from India. (s.2(6)(i) IGST Act)

2. Is your customer located outside India?

The person or company you bill is outside India. (s.2(6)(ii) IGST Act)

3. Is the customer's location the place of supply (for most SaaS, yes; see section 13)?

Under section 13(2) the place of supply is usually the recipient's location, and under 13(12) it is for online information and database access or retrieval (OIDAR) services. Some services have special rules (13(3) to 13(13)). (s.2(6)(iii) IGST Act)

4. Is the payment received in foreign currency (or in rupees where the RBI permits)?

Convertible foreign exchange, or Indian rupees wherever permitted by the Reserve Bank of India. (s.2(6)(iv) IGST Act)

5. Is the customer a separate business, not your own branch or establishment abroad?

Your own office or establishment outside India doesn't count as a foreign customer. (s.2(6)(v) IGST Act)

Result

Answer all five questions to see a result (0 of 5 answered). One “no” is enough to decide it.

Not tax advice. Ask your CA before you rely on it.

The five conditions: section 2(6) of the IGST Act

An “export of services” is a supply of a service where all of these hold:

  1. the supplier of service is located in India (s.2(6)(i))
  2. the recipient of service is located outside India (s.2(6)(ii))
  3. the place of supply of service is outside India (s.2(6)(iii))
  4. the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (s.2(6)(iv))
  5. the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 (s.2(6)(v))

Quoted as amended: the words “or in Indian rupees wherever permitted by the Reserve Bank of India” were added by the IGST (Amendment) Act 2018 from 1 February 2019. CBIC’s copy linked below is the original 2017 text; check the current text on India Code.

Place of supply: section 13

Where the supplier or the recipient is outside India, section 13(2) makes the place of supply the location of the recipient, except in the special cases of sections 13(3) to 13(13). For online information and database access or retrieval (OIDAR) services, section 13(12) also makes it the location of the recipient. For most SaaS sold to a customer abroad, the place of supply is therefore outside India, but check whether one of the special cases applies to you.

Zero-rated: an LUT or a refund

Section 16 makes an export of services a zero-rated supply. A registered person can either:

  • supply under a bond or Letter of Undertaking (LUT) without paying IGST, and claim a refund of unused input tax credit; or
  • pay IGST and claim a refund of the tax paid. Since 1 October 2023 this option is limited to notified classes of supply; according to secondary sources, Notification 01/2023-Integrated Tax allows it for most services. Check with your CA.

The LUT is Form GST RFD-11, filed on the GST portal before you make the zero-rated supplies. CBIC’s circular says: “The LUT shall be valid for the whole financial year in which it is tendered.”

The rate if it isn't an export

IT and software services are generally taxed at 18% GST (IGST for an inter-state supply, or CGST and SGST at 9% each within your state). That is the general rate, not a ruling on your product: check the rate notification for your SAC code.

Do you need to register?

Section 22(1) of the CGST Act sets the registration threshold at ₹20 lakh of aggregate turnover (₹10 lakh in special category states), and aggregate turnover (section 2(6) of the CGST Act) includes exports. Whether an exporter of services below the threshold must register is a question of interpretation (section 24(i) on inter-state supplies, and the relief for services in Notification 10/2017-Integrated Tax). Ask your CA.

If you sell through a merchant of record, it handles your customers’ tax abroad; your own GST position on what you supply to it is a separate question for your CA. To see what each payment provider keeps from a sale, use the payment fee calculator.

Not tax advice. Ask your CA before you rely on it.

Sources

  1. Integrated Goods and Services Tax Act, 2017 (CBIC copy) (original 2017 text; sections 2(6), 13 and 16)
  2. India Code (for the current, amended text of the IGST and CGST Acts)
  3. GST portal: furnishing a Letter of Undertaking (Form GST RFD-11)
  4. CBIC Circular 8/8/2017-GST on LUTs and bonds
  5. Tally Solutions: GST on software and SaaS exports (further reading, not an official source)
  6. Terra Insight: GST on export of services for SaaS (further reading, not an official source)

Questions, answered

Is SaaS sold to customers abroad zero-rated under GST?

Probably, if the sale meets all five conditions for an “export of services” in section 2(6) of the IGST Act: you are in India, the customer is outside India, the place of supply is outside India, you are paid in convertible foreign exchange (or in rupees where the RBI permits), and the customer isn't merely another establishment of your own business. An export of services is a zero-rated supply under section 16. Not tax advice; ask your CA before you rely on it.

What is an LUT and when do I file it?

A Letter of Undertaking (Form GST RFD-11) lets a registered person make zero-rated supplies without paying IGST. It is filed on the GST portal before you make the supplies, and CBIC's circular says “The LUT shall be valid for the whole financial year in which it is tendered”, so it is filed again each financial year.

Can I be paid in rupees and still count it as an export?

Section 2(6)(iv) accepts payment in convertible foreign exchange or “in Indian rupees wherever permitted by the Reserve Bank of India”; the rupee option was added by the IGST (Amendment) Act 2018 from 1 February 2019. Whether the RBI permits it for your payments is a question for your CA and your bank.

Do I need GST registration if I only sell abroad?

The general threshold in section 22(1) of the CGST Act is ₹20 lakh of aggregate turnover (₹10 lakh in special category states), and aggregate turnover includes exports. Whether an exporter of services below the threshold must register is a question of interpretation (section 24(i) on inter-state supplies, and the relief in Notification 10/2017-Integrated Tax), so ask your CA.

What if my customer is my own company's branch abroad?

Then condition (v) fails: the supplier and the recipient must not be merely establishments of a distinct person (Explanation 1 to section 8). The sale is then probably not an export of services, and GST likely applies.

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