GST on Software and SaaS: Rates and Place of Supply

Short answer: Software, whether pre-packaged or as a service (SaaS), is treated as a supply of service under GST and taxed at 18%. For Indian businesses, the key is to correctly determine the place of supply. For domestic clients, this dictates whether you charge CGST + SGST (within the same state) or IGST (inter-state). For international clients, it determines if the supply qualifies as a zero-rated export.

Is software a good or a service under GST?

Software is treated as a service under GST. Schedule II of the Central Goods and Services Tax (CGST) Act, 2017 explicitly classifies activities like the development, design, programming, customisation, adaptation, upgradation, and implementation of information technology software as a supply of services. This classification applies regardless of how the software is delivered, whether electronically via the cloud (SaaS) or on a physical medium like a pen drive.

What is the GST rate on software and SaaS?

The standard GST rate on all forms of software and SaaS is 18%. These services are generally classified under the Service Accounting Code (SAC) 998314, which covers 'Information technology (IT) design and development services'. Other related codes, such as 998313 for software products and 998315 for hosting, also attract the 18% GST rate. Businesses must ensure their invoices correctly reflect this rate and the appropriate SAC code.

How do I determine the Place of Supply for domestic clients?

Correctly determining the Place of Supply (POS) is critical as it decides which tax is levied. The rules are governed by Section 12 of the IGST Act, 2017:

• For Business-to-Business (B2B) supplies: If your client is a registered GST payer (you have their GSTIN), the POS is the location of the client. If the client is in the same state as you, you charge CGST + SGST. If they are in a different state, you charge IGST.
• For Business-to-Consumer (B2C) supplies: If your client is an unregistered individual or entity, the POS is the location of the client as per your records (based on their billing address). If no address is on record, the POS defaults to the location of the supplier (your location).

Place of Supply for Domestic SaaS Sales

Scenario	Supplier Location	Client Type	Client Location	Place of Supply	Tax to Charge
1	Karnataka	B2B (Registered)	Karnataka	Karnataka	9% CGST + 9% SGST
2	Karnataka	B2B (Registered)	Maharashtra	Maharashtra	18% IGST
3	Karnataka	B2C (Unregistered)	Karnataka (address on record)	Karnataka	9% CGST + 9% SGST
4	Karnataka	B2C (Unregistered)	Maharashtra (address on record)	Maharashtra	18% IGST
5	Karnataka	B2C (Unregistered)	Any State (no address on record)	Karnataka	9% CGST + 9% SGST

What is the Place of Supply for international clients?

For services provided to international clients, the Place of Supply is the location of the recipient of the service. This is governed by Section 13 of the IGST Act. If your software or SaaS is supplied to a client located outside India, the POS is outside India. This supply can qualify as an 'export of service' provided all the following conditions are met:

1. The supplier is located in India.
2. The recipient is located outside India.
3. The Place of Supply is outside India.
4. Payment is received in convertible foreign exchange.
5. The supplier and recipient are not merely establishments of the same person.

When these conditions are met, the supply is 'zero-rated'. This means you do not charge GST on your invoice, but you can still claim an Input Tax Credit (ITC) on your business expenses.

What is an LUT and why do SaaS companies need it?

A Letter of Undertaking (LUT) allows you to export services without charging IGST on your invoices. For a SaaS company with international clients, filing an LUT is essential for healthy cash flow. Without an LUT, you would have to pay 18% IGST on your export invoices and then go through the cumbersome process of claiming a refund. An LUT avoids this entirely. You can file Form GST RFD-11 online on the GST portal to obtain an LUT, which is valid for one financial year. Read our detailed guide on exporting services under LUT.

Worked example

Let's consider 'InnovateApps Pvt. Ltd.', a SaaS company based in Bengaluru, Karnataka. In September 2026, they issue the following invoices:

• Client 1: A manufacturing company in Bengaluru, Karnataka (B2B)

  • Subscription Value: ₹2,00,000
  • Place of Supply: Karnataka
  • GST Charged: 9% CGST (₹18,000) + 9% SGST (₹18,000)
  • Total Invoice: ₹2,36,000

• Client 2: A marketing agency in Pune, Maharashtra (B2B)

  • Subscription Value: ₹1,50,000
  • Place of Supply: Maharashtra
  • GST Charged: 18% IGST (₹27,000)
  • Total Invoice: ₹1,77,000

• Client 3: A freelancer in Chennai, Tamil Nadu (B2C with address on record)

  • Subscription Value: ₹20,000
  • Place of Supply: Tamil Nadu
  • GST Charged: 18% IGST (₹3,600)
  • Total Invoice: ₹23,600

• Client 4: A startup in San Francisco, USA

  • Subscription Value: $2,000 (equivalent to ₹1,66,000)
  • Place of Supply: USA
  • GST Charged: ₹0 (Export of service under LUT)
  • Total Invoice: $2,000

InnovateApps Pvt. Ltd. will pay the collected CGST, SGST, and IGST to the government when filing their GSTR-3B return. They can claim ITC on their own expenses, like AWS hosting bills and office rent, to offset this liability.

Common mistakes

1. Charging CGST/SGST on inter-state sales: This is a common error. Any supply to a client in another state must be charged with IGST, not CGST/SGST.
2. Incorrectly classifying B2C sales: For B2C inter-state supplies of services, IGST is payable. Failing to collect the client's address and defaulting to CGST/SGST is incorrect.
3. Not filing an LUT for exports: Many new exporters pay IGST on export invoices and get their working capital stuck while waiting for refunds. An LUT is a simple, online process that prevents this.
4. Forgetting e-invoicing compliance: If your turnover exceeds the threshold (currently ₹5 crore), you must issue e-invoices for all B2B transactions. Non-compliance leads to penalties and loss of ITC for your clients. Check our guide on e-invoicing under GST.
5. Not verifying customer GSTINs: Always verify the GSTIN provided by a B2B client on the GST portal before issuing an invoice. An incorrect GSTIN can lead to compliance issues.

How SP & SC helps

Navigating GST for a tech business can be complex. At SP & SC, we provide end-to-end GST advisory and compliance services for software and SaaS companies. We handle GST registration, LUT filing, accurate determination of place of supply, monthly and quarterly return filing (GSTR-1, GSTR-3B), and ITC reconciliation. We ensure your invoicing is compliant and your business is shielded from notices and penalties, allowing you to focus on building great products.

Frequently asked questions

H3: Do I need to issue e-invoices for my SaaS business?

Yes, if your aggregate annual turnover exceeds the prescribed threshold (currently ₹5 crores), you are required to issue e-invoices for all your B2B (business-to-business) supplies. This involves generating a unique Invoice Reference Number (IRN) from the government's Invoice Registration Portal (IRP) for each B2B invoice.

H3: What is the SAC code for software services?

The primary Service Accounting Code (SAC) for IT software services is 998314 (IT design and development services). Other relevant codes include 998313 (Custom-made software as a product), 998315 (Hosting and IT infrastructure provisioning services), and 998316 (IT infrastructure and network management services). You should choose the code that most accurately describes your service.

H3: Can I claim Input Tax Credit (ITC) on expenses for my SaaS business?

Absolutely. As a registered taxpayer, you can claim Input Tax Credit on GST paid for business inputs and services. This includes cloud hosting fees (e.g., AWS, Azure), software licenses, office rent, internet bills, professional fees, and hardware purchases used for your business. You can read more about Input Tax Credit rules here.

H3: Is GST applicable on free software trials?

Generally, no GST is applicable on free trials as there is no 'consideration' (payment) involved, which is a prerequisite for a supply to be taxable. However, if the free trial is contractually bundled with a paid service or if it falls under specific provisions of Schedule I of the CGST Act, GST implications might arise. It is always best to structure such offers carefully.

H3: Do I need GST registration if all my clients are international?

Even if 100% of your revenue comes from exports (which are zero-rated), you must obtain GST registration if your aggregate turnover exceeds the threshold of ₹20 lakh (₹10 lakh for special category states). Registration is legally required to claim the benefits of zero-rated exports, like filing an LUT and claiming refunds on input tax credit.

Get a fixed-fee quote

GST compliance is non-negotiable. Don't risk penalties or lost credits. Share your business documents with us, and we will provide a written, fixed-fee quote for handling all your GST needs, from registration and filing to advisory and notice responses. Contact SP & SC today or WhatsApp us at +91 90356 74566. We handle your compliance headaches end to end.