GST on Import of Services: Who Pays, How to Calculate & Common Compliance Gaps
- shubhamtulsian05
- 2 days ago
- 4 min read
Every Indian business that pays for a subscription to AWS, Google Cloud, Microsoft Azure, Adobe Creative Cloud, Salesforce, LinkedIn Ads, or any other foreign digital or professional service is importing a service — and is liable to pay GST on that import under the Reverse Charge Mechanism (RCM). The fact that the foreign company doesn't charge GST on its invoice is irrelevant; the Indian recipient is the one legally obligated to pay.
This is one of the most widely non-compliant areas in Indian GST — not from deliberate evasion, but from genuine unawareness. A 2023 GST department circular specifically flagged this as a focus area for scrutiny.
When Does GST Apply on Import of Services?
Basic rule: Under Section 5(3) read with Section 2(11) of the IGST Act, when a registered person in India receives services from a supplier located outside India (a 'non-taxable territory'), GST at 18% applies on the transaction under the Reverse Charge Mechanism — payable by the Indian recipient, not the foreign supplier.
Condition: The supply must be for use in the course or furtherance of business. Services imported for purely personal use by an unregistered individual are generally not within the RCM net.
Rate: 18% IGST is the standard rate for most imported services (since the supply is inter-state — from outside India to India). Specific services with different GST rates (e.g., insurance) follow those specific rates.
What Counts as Import of Services?
Cloud computing and SaaS: AWS, Google Cloud, Azure, Salesforce, HubSpot, Zoho (if billed from outside India), Slack, GitHub Enterprise.
Online advertising: Google Ads (billed from Singapore/Ireland), Meta/Facebook Ads, LinkedIn Ads, Twitter Ads.
Professional/consulting services: Foreign consultants, legal advisors, management consultants providing services to Indian companies.
Software licenses: Annual licenses for ERP systems, design tools, development tools billed by foreign entities.
Royalties and technical know-how: Payments to foreign entities for use of intellectual property, trademarks, patents.
Financial services: Foreign bank charges, international wire transfer fees, foreign financial advisory — specific exemptions may apply.
OIDAR Services — Special Category
Online Information and Database Access or Retrieval (OIDAR) services are a specific category of imported digital services where the foreign supplier itself is required to register in India and pay GST — rather than the Indian recipient doing so under RCM. This applies where the services are supplied to non-business (B2C) customers in India.
Examples of OIDAR: Netflix, Spotify, online gaming platforms, digital content subscriptions, dating apps — when provided to individual Indian consumers, the foreign platform must register for GST in India and pay.
For B2B OIDAR: Where OIDAR services are supplied to a registered GST business in India, the standard RCM applies — the Indian business pays, not the foreign supplier.
How to Comply — Step by Step
Step 1 — Identify all foreign service payments: Review your vendor payments, credit card statements, and bank entries for any foreign currency payments for services. Map each to a service category.
Step 2 — Determine taxable value: The value for GST purposes is the amount paid in foreign currency, converted to INR at the applicable exchange rate (RBI reference rate for the date of supply or date of payment, as applicable).
Step 3 — Prepare self-invoice: Under Rule 36(1)(b), where services are received under RCM, the recipient must prepare a self-invoice. Mark it 'Reverse Charge Applicable: Yes'. This self-invoice is the tax document for ITC purposes.
Step 4 — Pay IGST via cash ledger: RCM tax cannot be paid from the ITC credit ledger — it must be paid in cash through your GST portal. Deposit IGST (18%) before filing GSTR-3B for the relevant period.
Step 5 — Report in GSTR-3B: Report RCM inward supplies in Table 3.1(d) of GSTR-3B.
Step 6 — Claim ITC (if eligible): If the imported service is used for your taxable business outputs, claim ITC of the RCM paid in Table 4A of GSTR-3B in the same period. Net cash impact: zero for fully taxable businesses.
When ITC on Import of Services is Blocked
Section 17(5) blocked credits: ITC is NOT available on services imported for: employee welfare (health insurance, canteen, gym memberships), travel benefits, or any service specifically blocked under Section 17(5).
Exempt supplies: If you use the imported service partly for making exempt supplies, proportionate ITC must be reversed under Rule 42.
What Happens if You Haven't Been Paying RCM on Imports?
Non-payment of RCM on import of services is one of the highest-risk areas in current GST scrutiny. If the department detects it (through bank data, AIS, or cross-referencing forex payments with GSTR-3B RCM disclosures), it will raise a demand for all unpaid IGST plus 18% per annum interest plus penalty under Section 73 or 74 depending on the period of default.
The recommended action for businesses with historical non-compliance: compute the total liability, pay voluntarily with interest, and file amended GSTR-3Bs for open periods — or account for it in the next period's GSTR-3B with proper disclosure. PGT & Associates can assist in computing and regularising this gap safely.
How PGT & Associates Can Help
PGT & Associates conducts RCM health checks — reviewing all foreign vendor payments, identifying import of service obligations, computing historical liability, assisting in self-invoice preparation, and regularising past non-compliance. Contact us at +91-87994-99189.
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