If your business in India uses digital services from foreign companies like Adobe or Zoom, GST rules apply to you. Understanding how GST works on these purchases helps you stay compliant and save costs.
Foreign digital services refer to any digital product or service bought directly from outside India. These include:
These purchases are considered imports of services or goods, depending on the type of digital product.
The content is sourced and verified from the below mentioned sites:
GST applies to foreign digital service purchases when:
In this case, GST is paid under the Reverse Charge Mechanism (RCM), where the buyer is responsible for paying GST instead of the foreign supplier.
The Reverse Charge Mechanism means the buyer:
Example
If you pay ₹1,00,000 to a foreign SaaS provider:
If your business is not GST registered:
Many large platforms like Google, Microsoft, and Adobe comply with OIDAR rules.
| Type of Digital Service | GST Rate | Classification | Comments |
|---|---|---|---|
| Cloud-based SaaS (e.g., Zoom) | 18% | Service | Fully taxable under RCM |
| Electronically downloaded tools | 18% | Service | Treated as imported services |
| Digital content on CDs/USBs | Varies* | Goods + Customs Duty | Customs duty also applies |
*Customs duty applies to physical media imports along with IGST.
You can claim an input tax credit if:
This ITC can be claimed while filing the monthly GST return (GSTR-3B).
Payments to foreign vendors attract TDS under Section 195 of the Income Tax Act. Key points:
Failure to comply with GST and TDS regulations can lead to:
A tech company in Bengaluru bought a US-based SaaS subscription costing $1,000 per year. They asked if GST and TDS apply.
We advised:
This helped the company comply smoothly without penalties.
Indian banks require documentation to approve foreign payments:
These rules apply to payments exceeding ₹5 lakh/year under FEMA guidelines.
Understanding GST on foreign digital services is essential for Indian businesses. You must comply with the Reverse Charge Mechanism, claim input tax credit if eligible, and deduct TDS on payments to foreign vendors. Keeping proper records and consulting experts helps avoid penalties and keeps your business operations smooth.
Why GST Nil Return is Necessary?
GST Returns Filing For Multiple States
RCM means the buyer pays GST directly to the government instead of the supplier.
Yes, if registered under GST, payment is made under RCM.
Yes, if GST is paid under RCM and used for business.
The foreign supplier must register under OIDAR and charge GST.
Yes, TDS under Section 195 applies.
Forms 15CA and 15CB are required for payments above ₹5 lakh.
Yes, they attract customs duty and IGST.
Buyer may be liable to pay GST under RCM.
Report it in the GSTR-3B return every month.
No, ITC is only available for business use.
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