GST & Business Updates

GST on Foreign SaaS and AI Tools in India: RCM, OIDAR and ITC

An invoice-first guide to GST on foreign software and AI subscriptions: OIDAR, reverse charge, input credit, GSTR-3B and common mistakes.

NRS Editorial Desk · Published 2026-10-03 · 12 min read

Businesses in Manjeri, Malappuram, Calicut and elsewhere in India now buy cloud hosting, design software, AI assistants and collaboration tools online. The checkout page might show rupees, dollars, a foreign company, an Indian reseller or an app store. Those details can produce different GST outcomes for the same tool. The useful question is not 'Does ChatGPT charge GST?' but 'Who supplied this invoice to which recipient, and what tax was actually charged?'

How to decide GST on a foreign software subscription

This is a decision framework, not a promise that a named vendor always bills in one way. A supplier can use different entities, resellers and payment channels. A GSTIN field is useful evidence but not a legal switch that automatically turns supplier tax off and reverse charge on.

ChatGPT, Claude, Canva, AWS and GitHub: what to check on each invoice

These are invoice-check questions, not assertions about each company's current tax setup or price. Do not copy a GSTIN or billing path from a blog into your records. Save the invoice generated for your own account and confirm changes at renewal.

What four vendors actually say about billing settings

• OpenAI's help centre explains where ChatGPT and API account holders can edit billing information and tax IDs. Changes apply to future invoices; an older invoice requires a support review for possible reissue. That is a billing-control fact, not proof of a fixed Indian GST treatment for every plan.
• Anthropic says a paid Claude account may offer a Tax or VAT ID field depending on location. Check the field available in your own account and the final invoice rather than assuming it exists or changes GST on every subscription.
• Canva explicitly says adding a tax ID puts it on future invoices but does not automatically make the account tax-exempt; applicable tax may still be charged. This directly rebuts the idea that entering a GSTIN always creates an RCM invoice.
• AWS explains that an India-addressed new account may contract with AWS India as the local seller and provides Tax Settings for GST numbers and a Tax invoices area. Its seller of record can change with billing or tax details, so the account's actual invoice governs the GST review.

A side-by-side view of supplier GST and reverse charge

What changed in OIDAR from October 2023?

OIDAR means online information and database access or retrieval services under Section 2(17) of the IGST Act. The Finance Act 2023 removed the old 'essentially automated and involving minimal human intervention' words. It also redefined a non-taxable online recipient as an unregistered person receiving OIDAR in taxable territory. The former business-purpose exclusion was removed. Consequently, an unregistered freelancer buying a qualifying online service for work cannot be treated as a registered business merely because the use is commercial.

Many cloud and electronically delivered software products may be OIDAR, but product labels do not settle classification. A bundle with implementation, human advisory work, custom development or a different place-of-supply rule deserves its own analysis. Section 13(12) places OIDAR at the recipient's location and contains a two-indicator test for locating a recipient in India.

RCM for a registered Indian business: what must be done?

• Save the final invoice, supplier legal name and address, billing account, GSTIN supplied to the vendor and evidence of business use.
• Check whether the supplier is outside India, the recipient and place of supply are in India, and the service is taxable. Notification 10/2017–Integrated Tax (Rate) identifies the relevant reverse-charge category.
• Determine the Section 13(3) time of supply for the reverse-charge service rather than assuming that every invoice belongs to the card-payment month.
• If a self-invoice is required under Section 31(3)(f), check the 30-day Rule 47A limit and keep the supplier invoice, payment voucher and conversion working together.
• Pay applicable IGST through the electronic cash ledger. Subject to eligibility, report import-of-services credit separately in GSTR-3B.

The commonly applicable rate for these software and information services is 18%, but classification and any specific notification must be checked for the actual supply. Do not apply one SAC code to every AI tool, cloud contract and professional service simply because each is delivered online.

Time of supply, invoice and cash payment

For a service on reverse charge, Section 13(3) normally compares the payment date with the date 60 days after the supplier's invoice; the earlier is relevant. There is a separate rule for associated enterprises where the supplier is outside India. This is why a yearly contract, a monthly card debit and a delayed foreign invoice should not all be assigned to the same GST period by habit. Identify when the supply was received for Rule 47A, when payment happened and which invoice date applies; keep the working with the return.

The reverse-charge amount must be discharged through the electronic cash ledger; existing ITC does not settle that liability. That creates a cash-flow requirement even where the same registered business later qualifies for full ITC. Do not present 'RCM plus ITC' to a founder as if no cash payment or compliance work is required.

A ₹10,000 example: tax payment is not the same as tax cost

Assume a GST-registered Indian agency imports a taxable software service for ₹10,000, with no Indian GST charged by the overseas supplier, and 18% IGST applies. It would assess ₹1,800 under reverse charge and pay it in cash. If the agency is fully entitled to input credit, it may claim ₹1,800 under the import-of-services credit row after meeting the conditions. The gross cash outflow still happens. If the tool serves exempt or personal activity, or the agency is ineligible for credit, some or all of that ₹1,800 can remain a real cost.

For a USD invoice, Rule 34(2) refers to the applicable exchange rate determined under generally accepted accounting principles on the time-of-supply date for services. Do not assume the RBI reference rate is mandatory for every taxable service. Document the rate and basis used; a card statement is supporting evidence, not the whole GST analysis.

Can you claim ITC on ChatGPT, Canva, AWS or another tool?

Ask who issued this particular invoice and whether it names the registered recipient correctly. For a domestic taxable purchase, examine the supplier's valid GST invoice and GSTR-2B entry alongside Section 16 conditions. For an imported service on which the recipient pays reverse charge, preserve the prescribed self-invoice, proof of tax payment and business-use records; import-of-services RCM credit is not necessarily populated in GSTR-2B. Apportion or reverse credit where Section 17 requires it. A composition taxpayer generally cannot claim ITC.

If you bought a tool as an individual and later reimbursed it through the company, reimbursement by itself does not rewrite the supplier's invoice or create credit. Ask the supplier whether a lawful correction is possible; otherwise assess the expense and set up future business billing correctly. Neither a personal card nor a company card alone determines tax ownership.

Practical cases: where businesses make the wrong assumption

Case 1: GSTIN omitted on a prior invoice

A design agency discovers that an earlier subscription invoice names an individual and does not show the business GSTIN. The agency should not claim ITC simply by booking a reimbursement or changing the vendor profile afterward. It should ask the supplier whether a legally valid corrected invoice or credit note can be issued. If not, assess the expense without unsupported credit, correct the billing account before the next renewal and separately check whether the original supply gave rise to any recipient-side tax liability. The invoice facts, rather than a generic 'GST charged' label, decide the response.

Case 2: founder uses a personal card for a company account

A founder pays the company's cloud bill with a personal card. The payment method alone does not determine the GST recipient: compare the account agreement and tax invoice with the registered business details, document the reimbursement and test business use. Conversely, a company-card payment for a private account does not create a business invoice or automatic ITC. If a tool has both personal and business use, make a supportable apportionment instead of claiming the entire tax.

Case 3: an agency buys hosting for a client

The agency's purchase and its sale to the client are two supplies. First classify the supplier's invoice and any inward RCM or ITC. Then review the client contract: if the agency supplies a managed service in its own name, the client invoice has its own GST treatment and the hosting charge is generally part of the agency's consideration. Rule 33 can exclude a true pure-agent recovery only when its contract, authorisation, separate disclosure and other conditions are actually met; a simple 'reimbursement' label is insufficient. A client outside India adds a separate export-of-services and LUT analysis rather than automatically making the inward import tax-free.

Case 4: annual payment and app-store purchase

For an annual plan paid upfront, the books may spread the expense over twelve months, but GST timing follows its own time-of-supply rule. Do not mechanically divide the RCM tax into twelve monthly returns. For a subscription purchased through an app store, identify the platform or reseller shown as legal supplier; the app-store receipt may differ from a direct web invoice. If a business needs GST documentation, inspect the invoice before choosing the payment channel rather than assuming direct billing or app-store billing is always better.

Unregistered freelancers and composition taxpayers

Since the 2023 OIDAR change, an unregistered Indian freelancer can be a non-taxable online recipient even if the subscription is used for freelance work. It is therefore unsafe to say that buying foreign OIDAR automatically forces GST registration under Section 24(iii). Registration may arise for another reason, and a service that is not OIDAR may need a different analysis. If already registered, the recipient must assess its reverse-charge obligations; if using the composition scheme, input credit is generally unavailable even where reverse-charge tax must be paid.

Where to report it in GSTR-3B and what GSTR-2B misses

A registered recipient reports tax payable on inward supplies liable to reverse charge in GSTR-3B Table 3.1(d). Eligible input credit on import of services is recorded in Table 4(A)(2), after the tax is paid and the credit conditions are satisfied. Table 4(A)(3) is for other inward reverse-charge supplies. The GST portal specifically warns that import-of-services reverse-charge amounts are not completely supplied by GSTR-2B; a software-invoice register and manual reconciliation matter.

GSTR-1 is the supplier's outward-supply return; an Indian buyer does not put an imported SaaS purchase in its own GSTR-1. A domestic supplier's ordinary eligible GST invoice instead follows the regular inward-credit route, normally Table 4(A)(5) of GSTR-3B after GSTR-2B and statutory checks. For taxpayers required to file GSTR-9, reconcile the year's reverse-charge inward supplies with the annual-return disclosure, including Table 4G, against the monthly return and books. Quarterly return filers should assign each invoice to the right period and not assume that quarterly filing changes the underlying time of supply.

Do not infer that every difference between Tables 3.1(d) and 4(A)(2) is a notice or mistake. There can be ineligible credit, timing differences and non-import reverse-charge supplies. Reconcile the underlying invoices and explain the difference rather than forcing the two figures to match.

When is input credit too late?

Section 16(4) generally cuts off an ITC claim on an invoice or debit note at 30 November after the end of the relevant financial year, or the date of furnishing the relevant annual return, whichever is earlier, subject to applicable amendments and exceptions. The date is not permission to delay RCM payment or omit a self-invoice. A business cleaning up old subscription charges should make a period-by-period schedule of tax due, interest if applicable, document availability and remaining credit eligibility rather than promising to recover all historical GST.

Pre-purchase and monthly close checklist

• Before paying: identify the supplier entity, India billing entity or reseller, service recipient, tax ID field, and whether the purchase belongs to the business.
• After billing: save the final invoice and check if the stated tax is Indian GST, another jurisdiction's tax, or no tax at all.
• For each foreign invoice: assess import-of-services and reverse-charge treatment, determine time of supply and record the applicable service exchange-rate basis.
• For each eligible RCM item: preserve the self-invoice and payment evidence, report the liability, and assess—not assume—input credit.
• For each domestic GST invoice: check the recipient GSTIN, business use and GSTR-2B position before taking credit.
• At month end: reconcile subscriptions, card charges, invoices, books and GSTR-3B. Record unresolved invoices for follow-up with the vendor.

Questions that need individual advice

A foreign subscription may also raise income-tax withholding and treaty questions. For a payment or credit from 1 April 2026, the Income-tax Act, 2025 withholding framework, including Section 393, replaces quoting old Section 195 of the 1961 Act for new transactions. For remittances from that date, the Income Tax Department identifies Form 145 and, where required, CA certificate Form 146 rather than old Forms 15CA/15CB. The form part and certificate depend on chargeability, amount and any assessing-officer order. Review the actual contract and payee before remittance; neither 'all SaaS is royalty' nor 'all SaaS is free of TDS' is a safe rule.

The Supreme Court's Engineering Analysis judgment decided specified software copyright-payment questions under the then-applicable law and treaties. It is a useful starting point, not a blanket exemption for every cloud contract, managed service, custom development or technical-services arrangement. A treaty position can require residency and beneficial-ownership evidence and contract analysis. Separately, related-party imports, agencies reselling licences and partially exempt businesses may require GST valuation and credit review beyond the standard subscription examples above.

Frequently asked questions on GST for foreign SaaS

Does a ChatGPT or Canva subscription always attract reverse-charge GST in India?

No. A brand name is not enough to decide the tax. Check the actual legal supplier, whether the Indian recipient is GST-registered, whether the service is an import and what the invoice says about Indian GST. A domestic billing entity, an overseas OIDAR supplier and an app-store intermediary can produce different results for the same product.

Do I owe RCM if a vendor's invoice already shows Indian GST?

Do not pay twice merely because the supplier is foreign. First verify that the tax is Indian GST, not another country's sales tax, and that the invoice and recipient category are correctly treated. If the supplier billed a registered business as a consumer or the tax position is unclear, ask for a correction or professional review.

Does adding a GSTIN always remove the tax at checkout?

No. A GSTIN helps identify the recipient but does not change the supplier's legal entity or the place-of-supply rules. An Indian reseller commonly still charges GST to a registered buyer. Review the final invoice rather than treating the checkout setting as the tax answer.

Can I claim ITC on an AI or software subscription?

Credit may be available to a registered business when the statutory invoice, receipt, tax-payment, business-use and return conditions are met. Personal use, exempt activity, composition status and blocked-credit rules can reduce or remove it. A vendor's tax charge or an entry in GSTR-2B alone is not sufficient.

Why is my import-of-services invoice missing from GSTR-2B?

GSTN says reverse-charge credit on imports of services is not part of GSTR-2B. Maintain an internal register, report the reverse-charge liability in GSTR-3B Table 3.1(d), and enter eligible credit in Table 4(A)(2) after paying tax.

Is there a small-subscription exemption from import-services RCM?

Do not assume one from the subscription price. For a registered recipient within the notified import-of-services reverse-charge category, assess the supply even if the monthly charge is small. The first question remains whether that recipient, supply and place of supply fall within the rule.

Can I consolidate monthly self-invoices for several subscriptions?

Do not rely on an informal 'auditors accept it' practice. Section 31(3)(f), Rule 47A and the applicable invoice rules should be checked for the particular supplies. Preserve a traceable record for each vendor charge, even where accounting software groups entries for convenience.

What exchange rate applies to a USD SaaS invoice for GST?

For taxable services, Rule 34(2) looks to the applicable exchange rate determined under generally accepted accounting principles on the Section 13 time-of-supply date. An RBI reference rate is not automatically required for every service invoice. Keep the conversion policy and transaction working with the invoice.

Does a freelancer below the normal GST turnover threshold need registration just to buy software?

Not automatically for a qualifying OIDAR subscription. Since the 2023 amendment, an unregistered person can be a non-taxable online recipient even when the purchase supports work. A separate registration obligation or a non-OIDAR service can change the analysis, so check the facts before relying on the normal turnover threshold.

GST support for software buyers in Kerala

NRS and Associates can review a sample of foreign software invoices, map the correct GST treatment, check reverse-charge reporting and assess available input credit as part of an agreed engagement. The firm has physical offices in Manjeri and Calicut (Kozhikode) and serves businesses across Malappuram district and India. If you contact the team, share the supplier invoice, your GST registration status, business-use purpose and the relevant GSTR-3B period; do not send passwords or card credentials.