GST on IT & Software Services 2025-26 — Rates, Export & ITC Rules

IT services including custom software development, software testing, system integration, IT consulting, web development, and app development are classified under SAC 9983 (Other professional, technical and business services) and attract 18% GST. This applies whether the services are provided by an individual IT professional, a startup, or a large IT company. There is no exemption for IT services in the domestic market — all IT services supplied within India to registered or unregistered persons attract 18% GST (9% CGST + 9% SGST for intra-state; 18% IGST for inter-state). Maintenance and support contracts for software also attract 18% GST. The recipient (if a GST-registered business) can claim Input Tax Credit on IT service expenses, provided the services are used for business purposes and not blocked under Section 17(5) of the CGST Act.

Pre-packaged or off-the-shelf software sold in physical media (CD, DVD, pen drive) is treated as GOODS under GST, classified under HSN Code 8523 (Discs, tapes, solid-state non-volatile storage devices), and attracts 18% GST. This is distinct from custom software development (which is a service). However, when software is delivered electronically — i.e., downloaded via the internet (ESD — Electronic Software Delivery) — it is treated as a service (SAC 9983) and also attracts 18% GST. Therefore, regardless of the mode of delivery, the effective GST rate on software is 18%. Businesses purchasing software (physical or electronic) can claim ITC provided eligibility conditions under Section 16 are met. Note: Software-as-a-Service (SaaS) subscriptions are also taxed at 18% as services, not goods.

Yes. Export of IT services qualifies as a zero-rated supply under Section 16 of the IGST Act, 2017, meaning no GST is payable on the export invoice. Indian IT companies and freelancers providing services to overseas clients (outside India) can export under two methods: (1) Export under LUT (Letter of Undertaking) — File LUT on the GST portal before the financial year begins (Form RFD-11), issue export invoices with zero GST, and claim refund of accumulated Input Tax Credit from the government. This is the preferred route for IT companies. (2) Export with payment of IGST — Charge 18% IGST on invoice and subsequently claim refund. To qualify as export of service, the following conditions (Section 2(6) IGST Act) must be met: supplier is in India, recipient is outside India, place of supply is outside India, payment received in convertible foreign exchange, and supplier and recipient are not merely establishments of the same person.

Yes. IT companies can claim Input Tax Credit on hardware (computers, servers, networking equipment) and software purchases used in their business operations, subject to the standard ITC eligibility conditions under Section 16 of the CGST Act. Hardware like computers, laptops, servers attract 18% GST, and the ITC is fully claimable if: (1) the hardware is used for providing taxable outward supplies (software services, IT services), (2) a valid tax invoice exists from a GST-registered supplier, (3) the supplier has filed their GSTR-1 and the ITC reflects in the buyer's GSTR-2B, (4) ITC is claimed before the time limit under Section 16(4). However, ITC is NOT available on items used for personal purposes, items used for exempt supplies, motor vehicles (unless used for specific purposes), or items blocked under Section 17(5). For IT companies primarily providing taxable IT services (domestic or export), virtually all hardware and software expenses are eligible for ITC.

Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), and other cloud computing services are all taxable at 18% GST in India, classified under SAC 9983. These are treated as services (not goods), since no physical product is transferred — only access to software or computing resources over the internet. Key GST considerations for SaaS businesses: (1) Domestic SaaS subscriptions: 18% GST applies; issue tax invoice; collect GST from business customers. (2) SaaS exported to overseas clients: zero-rated under LUT, provided conditions of export of service are met. (3) Foreign SaaS providers serving Indian customers (OIDAR services): Must register under GST in India under the OIDAR (Online Information and Database Access or Retrieval) provisions, even without a physical presence, and pay 18% GST. Businesses subscribing to foreign SaaS (like Zoom, Salesforce, AWS) must pay GST under RCM if the foreign provider is not registered in India.