India has emerged as the global powerhouse for Software-as-a-Service (SaaS) and cloud software exports. However, navigating the GST regime for software products requires managing complex place of supply rules, international payment gateways, and recurring subscription models.
Is cloud software considered a good or a service? How should Stripe or Paddle subscription revenues be accounted for? When is an Indian SaaS company liable to charge 18% GST to overseas users?
In this guide, we break down the end-to-end GST framework for Indian SaaS startups and software developers.
Validate Your SaaS Export Eligibility
Before shipping software licenses or cloud subscriptions abroad under 0% tax, test your contract terms against the 5 statutory conditions of Section 2(6) using our SaaS Export LUT Calculator.
Software Classification: Goods vs Services under GST
Under the GST regime, the classification of software is governed by Schedule II of the CGST Act:
- Software as a Service (SaaS), Cloud Software & Custom Code: Expressly classified as a Supply of Services under SAC 998314 (Information technology software services) or SAC 998315 (Hosting and infrastructure services).
- Packaged Software on Physical Media: If shrink-wrapped software is sold off-the-shelf on a physical CD/flash drive without developer customization, it is treated as a supply of goods under HSN 8523.
- Standard Tax Rate: Both domestic SaaS subscriptions and custom software development attract 18% GST (9% CGST + 9% SGST or 18% IGST).
SaaS Exports: Zero-Rated Supply under Section 16
When an Indian SaaS company licenses software to overseas customers in the US, Europe, or Southeast Asia, the transaction qualifies as a Zero-Rated Supply of Services under Section 16 of the IGST Act.
The 5 Statutory Tests of Section 2(6):
To export at 0% GST without paying 18% tax upfront, your operations must strictly fulfill all five conditions:
- Supplier Location: The SaaS entity is located in India.
- Recipient Location: The subscriber / enterprise buyer is outside India.
- Place of Supply: Outside India (governed by default Section 13(2) rules where recipient address is abroad).
- Convertible Foreign Exchange: Payment is realized in USD, EUR, GBP, or approved Vostro INR accounts.
- Distinct Persons: The customer is an independent third party, not a mere foreign branch or unincorporated liaison office.
The Letter of Undertaking (LUT) Workflow:
- File Form GST RFD-11 on the GST portal at the start of each financial year (prior to April 1st).
- Generate export invoices displaying your GSTIN, foreign client details, and the mandatory declaration:
“Supply meant for export under Letter of Undertaking without payment of Integrated Tax (IGST).” - Report export revenues under Table 6A of GSTR-1 and Table 3.1(b) of GSTR-3B.
- Apply through Form RFD-01 under Rule 89(4) for any unutilized ITC refund admissible under the statutory formula and conditions. The refund is not automatically equal to all ITC in the ledger.
LUT vs paying IGST: check whether the second route is available
For eligible zero-rated SaaS exports, the usual working-capital route is to furnish an LUT, export without payment of IGST and apply for any admissible refund of unutilized ITC. The refund depends on eligible credit, the Rule 89 formula, export proceeds and supporting records; an LUT does not guarantee a full cash refund.
Do not assume every SaaS exporter can instead pay IGST and claim that amount back. Section 16 of the IGST Act allows that route only for notified classes of persons and notified classes of goods or services. Before choosing it, confirm that a current notification covers the particular service and supplier. A refund is processed under the applicable claim procedure; a provisional refund is not automatic. For an estimate, use the GST Refund Calculator; it cannot determine legal eligibility.
Merchant of Record (MoR): Stripe, Paddle & Lemon Squeezy
Many Indian SaaS founders use Merchant of Record (MoR) platforms like Paddle, Lemon Squeezy, or FastSpring to sell globally. The GST result depends on the MoR contract, the parties to each supply, and the platform’s actual role; do not assume that every platform arrangement is automatically an export.
Direct Gateway (Stripe India / Razorpay) vs MoR (Paddle):
- With Stripe / Razorpay: You are the direct seller. You invoice the customer. If the customer is in India, you charge 18% GST. If overseas, you export under LUT at 0% GST.
- With Paddle / Lemon Squeezy (MoR): The contract may make the platform the reseller or merchant of record, but verify the contracting entity, customer, place of supply, payment and export conditions before treating your supply as a B2B export under LUT. The platform’s collection of foreign VAT or sales tax does not by itself establish the Indian GST treatment.
The OIDAR Threat: Selling B2C SaaS in India
Some electronically supplied services may qualify as Online Information and Database Access or Retrieval (OIDAR) Services under Section 2(17) of the IGST Act. Classification depends on the service and how it is supplied; a B2C customer alone does not make every service OIDAR. Where a non-resident supplier provides OIDAR services to a non-taxable online recipient in India, the special registration and tax rules may apply. Verify the supplier’s location, recipient status, service and current rate before charging GST.
Frequently Asked Questions (FAQs)
Can an Indian SaaS company claim ITC on AWS or Google Cloud hosting?
You may claim eligible ITC on hosting invoices used for business, subject to Section 16, invoice and reporting conditions, blocked-credit rules and any apportionment. Exporting SaaS does not by itself guarantee that all hosting ITC is refundable; any refund is subject to the Rule 89 formula and other conditions.
Are setup and implementation fees treated as part of the SaaS export?
Yes. Where professional implementation, onboarding, and customization services are bundled naturally with the core SaaS subscription for an overseas enterprise client, the entire contract is treated as a composite zero-rated export supply under Section 2(30).
Official references
- IGST Act, Section 16 — Zero-rated supply — LUT refund route and the notification-based IGST-payment option.
- CGST Rules, Rule 89 — refund claim procedure and formula for zero-rated supplies under LUT.
- GST Portal — file LUT, export returns and refund applications, and verify current portal requirements.
This guide is general information. Confirm the export conditions, payment route, applicable notification and refund eligibility for the contract and tax period before invoicing.