GST Compliance for SaaS and Cloud Computing in India: Rates, Registration & Cross-Border Rules

Posted by Written by Yanyan Shang Reading Time: 5 minutes

India’s GST framework is evolving to keep pace with the rapid growth of digital services. As SaaS and cloud platforms become essential to modern business operations, understanding their tax treatment has become critical.

India Briefing explores how GST applies to SaaS and cloud-based services, covering classification, tax rates, place of supply, compliance obligations, and cross-border considerations for both Indian and foreign providers.

India’s digital economy is rapidly expanding, and with this, the application of Goods and Services Tax (GST) on technology-driven services has become increasingly important. This is particularly crucial in the context of Software-as-a-Service (SaaS) and cloud computing.

SaaS and cloud services are integral to modern business operations, offering scalable, cost-efficient solutions for everything from data storage to enterprise software. Their growing adoption across sectors has brought them under closer scrutiny from tax authorities, both for revenue protection and regulatory consistency.

Understanding the GST implications of these digital services is crucial for both Indian and foreign service providers. From rate applicability and place of supply rules to reverse charge obligations, businesses must navigate a complex framework to remain compliant and optimize their tax positions.

Classification and GST rates for SaaS and cloud computing

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Under India’s GST regime, SaaS and broader cloud-based services are classified as services rather than goods. These services are typically delivered over the internet on a subscription basis without any physical medium, aligning them with Online Information and Database Access or Retrieval (OIDAR) services under GST.

Common SaaS examples include customer relationship management (CRM) tools, cloud-based accounting software, and project management applications. The standard GST rate for SaaS and cloud services is 18 percent, applicable to most IT-enabled services delivered via digital platforms. Certain software services, particularly government-issued or specific physical media formats, may attract a nil GST rate or exemptions, depending on usage and classification.

Key SAC codes for SaaS and cloud services

For classification and compliance purposes, businesses must refer to the relevant Service Accounting Codes (SAC) under the HSN (Harmonized System of Nomenclature) structure. Key SAC codes for SaaS and cloud-related services include:

  • 99831: Management consulting and IT services
  • 998313: IT infrastructure and support services
  • 998314: Designing and formulating IT solutions
  • 998315: Hosting and infrastructure setup for IT systems
  • 998316: Management of IT systems and networking
  • 998319: Other IT-related services not elsewhere classified

These SAC codes help determine the correct tax rate and support proper GST invoicing and return filing. Businesses offering cloud-based or SaaS solutions must ensure accurate classification to avoid compliance risks and penalties during audits or assessments.

Domestic and cross-border supply: Place of supply rules

As per India’s GST framework, determining the place of supply is critical for identifying the correct tax structure:

  1. Central GST (CGST)
  2. State GST (SGST) for intra-state transactions and
  3. Integrated GST (IGST) for interstate or cross-border supplies.

This determination is especially crucial for digital services such as SaaS and cloud platforms, where providers deliver services online without a physical point of transfer.

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In business-to-business (B2B) transactions, businesses generally treat the recipient’s location as the place of supply, allowing eligible recipients to claim input tax credit (ITC). In business-to-customer (B2C) transactions, the recipient’s location also governs the place of supply, although complications can arise if the recipient is unregistered or their location is unclear.

For cross-border services, SaaS or cloud providers may treat their offering as a zero-rated export under Section 2(6) of the IGST Act—if they meet all export conditions. However, if authorities classify the provider as an intermediary under Section 2(13), they deem the place of supply to be India, making the transaction taxable domestically.

To retain export status, providers must clearly establish that they deliver the service on their own account and avoid contract language that implies facilitation. Accurate classification and place of supply determination help businesses minimize compliance risks and safeguard tax benefits.

GST compliance obligations for SaaS service providers

SaaS and cloud service providers operating in India must navigate a defined set of GST compliance requirements.

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  • Registration thresholds: Under Section 22 of the CGST Act, providers must register for GST if annual turnover exceeds INR 2 million/US$22,843 (INR 1 million/US$11,421.7 in special category states). Foreign providers offering OIDAR services to Indian consumers may also need to register in India.
  • Invoicing and returns: Registered providers must issue GST-compliant invoices—including GSTIN, SAC codes, and tax details—and file regular returns such as GSTR-1 (outward supplies) and GSTR-3B (summary returns).
  • E-invoicing for larger providers: Businesses with turnover above INR 50 million (US$571,085) are required to adopt e-invoicing for B2B transactions, generating invoices through the central government’s Invoice Registration Portal (IRP).
  • Record-keeping: Providers must maintain invoices, contracts, payment proofs, and ITC documentation for at least six years, as required under Section 35 of the CGST Act. Proper records are critical, especially for cross-border transactions and audits.

Reverse charge mechanism (RCM) and foreign service providers

Foreign SaaS and cloud service providers supplying to Indian customers may fall under the RCM. As per Section 5(3) of the IGST Act, 2017, when a registered Indian business receives digital services from a foreign provider, the tax liability shifts to the recipient, who must self-assess and pay IGST under the RCM. This amount is typically creditable as input tax, provided the service is used for business purposes and proper documentation is maintained.

In B2C transactions, where the recipient is an unregistered individual consumer, the foreign service provider is required to register for GST in India, collect the applicable tax from the customer, and file regular GST returns. This applies particularly to providers of OIDAR services.

These provisions are designed to ensure tax parity between domestic and foreign digital service providers. Non-compliance may result in penalties or restrictions, making it essential for international SaaS and cloud vendors to assess their obligations carefully when serving the Indian market.

ITC and tax planning

One of the key advantages of the GST regime for SaaS and cloud service users is the ability to claim ITC on services used for business purposes. Businesses that subscribe to cloud-based software—such as project management tools, enterprise platforms, or CRM systems—can offset the GST paid on these services against their output tax liability, thereby reducing overall tax costs and improving cash flow.

However, ITC is not available for personal use or for services used in making exempt supplies. For example, individuals using a SaaS product for non-business purposes or businesses providing exempt services cannot claim ITC on related subscriptions.

Key challenges and strategic takeaways

SaaS and cloud service providers continue to face several compliance challenges under India’s GST regime. A key issue is place of supply determination, especially in digital transactions where the recipient’s location can be difficult to establish. This affects the correct application of IGST and the eligibility for export benefits. Cross-border compliance adds another layer of complexity, as foreign providers must register under GST, file returns, and manage tax obligations without having a physical presence in India. Additionally, small and medium enterprises (SMEs) and freelancers often lack clarity on their GST obligations, leading to missed registrations or incorrect tax treatment.

To mitigate risks, businesses should focus on contractual clarity, accurate classification, and robust documentation. Periodic reviews and proactive compliance help ensure alignment with evolving tax rules. As GST regulations continue to develop in response to India’s expanding digital economy, staying informed is critical for both domestic and foreign service providers to operate efficiently and avoid penalties.

(US$1 = INR 87.55)

About Us

India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Readers may write to india@dezshira.com for support on doing business in India. For a complimentary subscription to India Briefing’s content products, please click here.

Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Dubai (UAE), Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Bangladesh, Italy, Germany, the United States, and Australia.