GST on Import of Services: IGST Under Reverse Charge

Short answer: When an Indian business imports services from a foreign supplier, it is liable to pay Integrated GST (IGST) directly to the government under the Reverse Charge Mechanism (RCM). This liability applies regardless of the business's turnover. The recipient can typically claim this IGST paid as Input Tax Credit (ITC), subject to conditions. This ensures a level playing field between domestic and foreign service providers.

What is considered an 'import of services' under GST?

An activity qualifies as an 'import of services' only if it meets three specific conditions defined in Section 2(11) of the IGST Act, 2017. These are:

1. The supplier of the service is located outside India.
2. The recipient of the service is located in India.
3. The place of supply of the service is in India.

All three conditions must be satisfied for the transaction to be treated as an import of services. If even one condition is not met, the transaction does not fall under this definition.

Who is liable to pay GST on imported services?

The recipient of the service in India is liable to pay the GST. As per Section 5(3) of the IGST Act, any import of services is subject to tax under the Reverse Charge Mechanism (RCM). This means the liability to pay tax shifts from the supplier (who is outside India) to the recipient. The Indian business must calculate the IGST, deposit it with the government, and report it in their GST returns.

How is the value of imported services determined for GST?

The value is determined according to Section 15 of the CGST Act, which is generally the transaction value. This is the price actually paid or payable for the service. For foreign currency transactions, the value in Indian Rupees is calculated using the exchange rate as notified by the Central Board of Indirect Taxes and Customs (CBIC) on the date of the time of supply. This rate is different from the RBI reference rate and must be checked for the specific date.

What is the place of supply for imported services?

The place of supply determines whether a service is considered supplied in India. For most cross-border services, the default rule under Section 13(2) of the IGST Act applies. This rule states that the place of supply is the location of the recipient of the services. Since the recipient is in India, the place of supply is in India, satisfying one of the key conditions for it to be an 'import of service'. Specific rules exist for certain services like those related to immovable property or events.

Can you claim Input Tax Credit (ITC) on GST paid on imported services?

Yes, a registered person can claim Input Tax Credit (ITC) on the IGST paid under RCM for imported services. This credit is available provided the services are used or intended to be used in the course or furtherance of business. The recipient must first pay the IGST liability in cash and report it in their GSTR-3B. They can then claim the same amount as ITC in the same return, subject to the conditions and restrictions laid out in the input tax credit rules and Section 17(5) of the CGST Act.

Feature	Import of Goods	Import of Services
Governing Law	Customs Act, 1962 & IGST Act, 2017	IGST Act, 2017 & CGST Act, 2017
Tax Levied	Basic Customs Duty + IGST	Only IGST
Tax Payer	Importer pays at the time of customs clearance	Recipient pays under Reverse Charge Mechanism (RCM)
Point of Taxation	At the time of filing Bill of Entry for home consumption	Earlier of payment date or 61st day from invoice date
Governing Document	Bill of Entry	Invoice from foreign supplier
ITC Availability	ITC of IGST paid is available on the basis of the Bill of Entry	ITC of IGST paid under RCM is available after payment
Reporting Form	GSTR-3B (and auto-populated in GSTR-2B)	GSTR-3B (both liability and ITC sections)

Worked example

Let's consider a scenario for a Bengaluru-based tech startup, "Innovate Solutions Pvt. Ltd.", which is registered under GST in Karnataka.

• Service Imported: Digital marketing and SEO services.
• Service Provider: "Global Marketing Inc.", based in Delaware, USA.
• Invoice Value: $5,000 USD.
• Invoice Date: 10th August 2026.
• Payment Date: 25th September 2026.

Step 1: Determine the Time of Supply As per the time of supply rules for RCM on imported services, it is the earlier of: a) The date of payment (25th September 2026). b) The 61st day from the date of the invoice (10th August 2026 + 60 days = 9th October 2026). The earlier date is 25th September 2026. This is the date on which the tax liability arises.

Step 2: Calculate the Taxable Value The taxable value must be in Indian Rupees. The exchange rate to be used is the one notified by the CBIC for the date of the time of supply (25th September 2026).

• Assume CBIC Notified Exchange Rate on 25th Sep 2026: ₹84.50 per USD.
• Taxable Value = $5,000 * ₹84.50 = ₹4,22,500.

Step 3: Calculate the IGST Payable The applicable GST rate for marketing services is 18%.

• IGST Payable = Taxable Value * 18%
• IGST = ₹4,22,500 * 18% = ₹76,050.

Step 4: Payment and Reporting Innovate Solutions Pvt. Ltd. must pay this ₹76,050 in cash (through their electronic cash ledger) while filing their GSTR-3B for September 2026.

Step 5: Claiming Input Tax Credit (ITC) In the same GSTR-3B for September 2026, Innovate Solutions can claim an ITC of ₹76,050, as the marketing service is used for business promotion. This makes the transaction tax-neutral for the company, effectively.

Common mistakes

1. Ignoring RCM Liability: Many businesses mistakenly assume that since the supplier is foreign, no GST is payable in India. This is incorrect; the recipient is liable under RCM.
2. Not Registering for GST: A business must register for GST if it is liable to pay tax under RCM, even if its aggregate turnover is below the threshold limit. The standard turnover-based GST registration eligibility does not apply.
3. Using the Wrong Exchange Rate: Using the bank's exchange rate or the RBI's rate instead of the rate notified by the CBIC for calculating the taxable value is a common error leading to incorrect tax payment and potential notices.
4. Incorrect ITC Claim: Claiming ITC before paying the RCM tax liability in cash is not allowed. The tax must first be paid to the government, and only then can it be claimed as credit in the same or a subsequent tax period.
5. Misclassifying Transactions with Related Parties: Services received from a foreign branch or head office, even without any payment (consideration), are treated as a supply under Schedule I of the CGST Act and are subject to IGST on a deemed value.

How SP & SC helps

Navigating the complexities of reverse charge on imported services requires careful compliance. SP & SC's team of Chartered Accountants provides end-to-end assistance with GST matters. We help you determine your RCM liability, ensure accurate calculation of IGST, handle GST registration triggered by imports, and ensure precise GST return filing to correctly report liability and claim eligible Input Tax Credit. We manage the entire process, preventing costly errors and future notices.

Frequently asked questions

Do I need to pay GST if I import services for personal use?

No, GST is not levied if services are imported by an individual for personal purposes and not for business. However, this exemption does not apply to Online Information and Database Access or Retrieval (OIDAR) services (like streaming subscriptions), where the foreign supplier is liable to collect and pay GST.

What is the GST rate on imported services?

The IGST rate applicable to an imported service is the same rate that would apply if the service were provided domestically in India. For most professional, technical, and consulting services, the rate is 18%.

When is the IGST on imported services due?

The tax is due at the time of supply. For services under RCM, this is the earlier of the date of payment to the supplier or the 61st day from the date of the service invoice. The liability must be discharged in the GSTR-3B for that month.

Do I need to deduct TDS on payments to foreign suppliers?

Yes, in addition to GST liability, payments made to non-resident suppliers for services are often subject to Tax Deducted at Source (TDS) under Section 195 of the Income-tax Act, 1961. This is a separate compliance requirement from GST.

What if my company has zero turnover but imports services?

Even with zero domestic turnover, if your business imports services, you become liable to register for GST and pay IGST under RCM. The threshold exemption for turnover does not apply to RCM liability.

Get a fixed-fee quote

Understanding your GST obligations on international transactions is crucial. Share your documents with us for a confidential review and a written fixed-fee quote. Contact SP & SC or message us on WhatsApp at +91 90356 74566. We handle all GST compliance and litigation matters, end to end.