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For a service to count as an import under India’s IGST framework, the supplier must be located outside India, the recipient must be in India, and the place of supply must also be in India. If those conditions are met, an Indian registered recipient ordinarily pays IGST under reverse charge, provided the applicable notification covers the supply. The answer is not determined by the foreign supplier’s address or the currency used to pay alone: place-of-supply exceptions and special rules, including the OIDAR rule for certain non-taxable online recipients, can change who accounts for tax.
What reverse charge and forward charge mean
These terms describe who is responsible for accounting for tax on a supply. Under reverse charge, the recipient—not the supplier—pays the tax to the government. Under a supplier-side or forward-charge route, the supplier is responsible for accounting for it. For a cross-border service, do not treat “forward charge” as an alternative the parties can select just because they prefer it. The applicable law and notifications determine the mechanism for the specific supply.
That distinction matters for technology purchases because an Indian business may contract with a supplier outside India for software, online services, consulting, or other services. A foreign invoice does not, by itself, settle whether the transaction is an import under GST, whether reverse charge applies, or whether the recipient can claim input tax credit. Those are separate questions.
First test whether the service is an import
Section 2(11) of the Integrated Goods and Services Tax Act, 2017 defines an “import of services” using three conditions. All three must be satisfied:
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- Supplier location: The supplier of the service is located outside India.
- Recipient location: The recipient of the service is located in India.
- Place of supply: The place of supply of the service is in India.
The Act treats imported services as inter-State supplies. The three-part test is therefore the starting point, not a formality to skip once a foreign supplier is identified. If the place of supply is outside India, the transaction does not meet this statutory definition of an import—even though the supplier is abroad and the Indian business has paid for a service.
Why invoice address and payment currency are not enough
Check where the service supplier and recipient are located, then determine the place of supply under the applicable rule. An invoice addressed to an Indian office can be relevant evidence, but it does not replace the statutory analysis. Nor does paying in rupees automatically make a foreign service domestic or eliminate import treatment. CBIC’s sectoral FAQ on imported software explains that the currency used to pay consideration is immaterial when the three import conditions are met.
Apply the same discipline to foreign-currency payments: the currency is not a substitute for the import test. A transaction’s tax treatment turns on the statutory locations, the service actually supplied, and any applicable special rule.
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For cross-border services, section 13 of the IGST Act generally places the supply at the recipient’s location. That is a general rule, not an answer for every service. Section 13 contains category-specific exceptions, including rules for intermediary services and specified services connected with goods, individuals, immovable property, or events.
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This is why the service must be described accurately before deciding whether it is an import. A contract’s label—such as “platform fee,” “software support,” or “consulting”—is not necessarily enough to classify what is actually supplied. Review the service description, contract, invoice, how the work is performed, and the establishment receiving it. Then test the applicable place-of-supply provision rather than assuming that every cross-border service uses the general recipient-location rule.
Intermediary services: a significant exception to check
The text of section 13 cited in CBIC’s tax-information material gives intermediary services supplier-location treatment. Depending on the facts and classification, that can mean the place of supply is outside India when the supplier is outside India. If so, the service would fail the third limb of the import definition. The foreign location of the supplier alone does not override that result.
Do not classify a service as intermediary merely because a contract uses that word, or assume that a service is not intermediary because it involves technology. The relevant question is what the supplier actually does and which statutory category applies. Where the classification is uncertain, obtain transaction-specific tax advice before treating the payment as an import subject to reverse charge.
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Who pays: compare the ordinary reverse-charge route with the OIDAR exception
| Question | Qualifying imported service under reverse charge | OIDAR supplied to a non-taxable online recipient |
|---|---|---|
| Who ordinarily accounts for IGST? | The Indian registered recipient, if the supply is an import and the applicable reverse-charge notification covers it. | The supplier-side mechanism applies under section 14, according to CBIC’s explanation of this recipient-status case. |
| What must be checked first? | All three import conditions, the service’s place of supply, recipient status, and the relevant notification. | Whether the service falls within the OIDAR rules and whether the recipient is a non-taxable online recipient under the applicable provisions. |
| Does the general import summary settle the answer? | No. The import definition and notification coverage still need to be checked. | No. Section 14 is a special route; do not apply it to all imported services. |
| Does this establish input tax credit? | No. Credit eligibility and restrictions must be considered separately. | No. The recipient’s credit position depends on the ordinary eligibility and documentation rules that apply to the transaction. |
The OIDAR distinction is important because a broad statement such as “the Indian recipient always pays GST on a foreign service” is wrong. CBIC’s FAQ describes a supplier-side section 14 route for an unregistered recipient receiving OIDAR. Do not extend that exception to other imported services, and do not assume that any online or software-related service automatically qualifies as OIDAR. Confirm the service category and recipient status under the applicable rules.
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When reverse charge ordinarily applies
Section 5(3) of the IGST Act authorizes the Government, on the recommendations of the GST Council, to notify categories of supply for which the recipient pays tax under reverse charge. In practical terms, satisfying the import definition is an essential step, but it is not the only check: identify the applicable notification and confirm that it covers the actual service and recipient arrangement.
For a qualifying imported service covered by the notified framework, an Indian registered recipient ordinarily pays IGST under reverse charge. The exact rate, tax base, reporting treatment, and credit position depend on the applicable law and the transaction’s facts. The official material discussed here does not establish one rate that can safely be applied to every imported service, so do not infer a rate from the supplier’s country, invoice currency, or the fact that the service is digital.
Do not rely on the superseded blanket rule
Some older explanations may describe section 5(4) as imposing reverse charge broadly on supplies from unregistered suppliers. CBIC’s current tax-information text notes that the earlier blanket wording was replaced with effect from 1 February 2019. Do not repeat that old wording as a current, across-the-board rule. Check the provision and notifications applicable to the tax period and transaction in question.
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The same CBIC Act page notes an amendment whose commencement is yet to be notified in the displayed text. If a conclusion depends on an amended provision, verify whether it has commenced before applying it. Tax treatment is tied to the law effective for the relevant period, not simply to the latest-looking wording on a page.
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A practical decision process for a foreign service invoice
Use this sequence before recording a foreign service payment as reverse-charge taxable. It separates the classification decision from later accounting and credit decisions.
- Identify the parties and their status. Establish where the supplier is located, which Indian entity or establishment receives the service, and the recipient’s GST and relevant tax status. If multiple establishments are involved, identify the one actually receiving the service.
- Describe the service in substance. Read the contract, statement of work, invoice, and service-delivery details. Record what the supplier does, not just the product or line-item name.
- Determine place of supply. Apply section 13’s general rule only after checking for a relevant category-specific exception. Consider whether the supply could be intermediary services or a service tied to goods, individuals, immovable property, or an event.
- Apply all three import conditions. Confirm supplier outside India, recipient in India, and place of supply in India. If any limb fails, the statutory import definition is not met.
- Check for a special liability route. If the service may be OIDAR, assess the recipient-status distinction and section 14. Do not transfer the ordinary recipient-pays conclusion to a category with a specific supplier-side mechanism.
- Find the applicable reverse-charge notification and rate. Confirm that the service and recipient arrangement fall within the notification for the relevant period. Do not assume all imports have the same rate or coverage.
- Handle payment, reporting, and credit as separate questions. Determine the tax payment obligation first, then verify current return reporting requirements and whether the paid tax is eligible for input tax credit, including any restrictions and documentation conditions.
Software subscriptions and other technology services
A foreign software subscription is a useful example of why the test needs three steps. CBIC’s sectoral FAQ says the import conditions are met where the supplier is outside India, the recipient is in India, and the place of supply is in India; it also says payment in Indian rupees does not change that result. The FAQ separately identifies the OIDAR treatment for a non-taxable online recipient, under which the supplier pays through section 14.
That example is an official explanation, not a universal answer for every software invoice. The actual service, recipient status, place-of-supply rule, applicable notification, and tax period still matter. A subscription, implementation service, support arrangement, intermediary service, and other technology-related work may not all be classified identically. Review what the contract includes rather than treating “software” as a complete GST category.
Tax payment, return reporting, and input tax credit are different decisions
Once reverse charge applies, the recipient’s obligation to pay tax does not automatically answer whether the recipient can use that amount as input tax credit. Payment, reporting, and credit involve distinct legal requirements. A business should verify each one for the relevant period and transaction.
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- Payment: Confirm who is liable under the applicable reverse-charge notification or special supplier-side route, as well as the applicable rate and timing under current rules.
- Reporting: Confirm the current return fields, form requirements, and deadlines for the recipient’s situation. These procedures can change; do not rely on an old filing guide without checking the applicable period.
- Credit: Check ordinary input-tax-credit eligibility, restrictions, and required records. The fact that reverse-charge tax was paid is not, by itself, proof that the amount is usable as credit.
This separation is especially useful when reviewing a software or service invoice: a business may reach a correct conclusion that reverse-charge tax is payable but still need a separate analysis of how that tax is reported and whether credit is available.
Common errors to avoid
- “The supplier is foreign, so reverse charge must apply.” Foreign supplier location is only one of the three import conditions; place of supply and notification coverage must also be tested.
- “We paid in rupees, so it is not an import.” CBIC’s imported-software FAQ says the currency used for payment is immaterial when the import conditions are met.
- “The place of supply is always the Indian recipient’s location.” Section 13 has exceptions. Check the service category, including intermediary treatment and other specified categories.
- “Forward charge is an election available to the parties.” The liability mechanism follows the statutory route and applicable notifications; it is not a free choice between accounting methods.
- “Every online service is OIDAR.” The supplier-side exception discussed here is tied to the OIDAR rules and recipient status. Establish both before applying section 14.
- “If we paid reverse-charge tax, we can claim it as credit.” Credit eligibility and restrictions are separate from the tax-payment obligation.
- “An old summary of section 5(4) still gives the general rule.” CBIC’s current text notes the earlier blanket wording was replaced with effect from 1 February 2019. Check the rules for the period instead of repeating superseded wording.
What to verify before reaching a transaction-specific conclusion
The general framework supports a structured analysis, but it is not a case-specific opinion. For a real invoice or contract, assemble the records and confirm the law applicable to the period:
- Supplier’s location and contracting entity
- Recipient’s Indian establishment, GST status, and whether it is a non-taxable online recipient where relevant
- Contract, invoice, deliverables, and evidence of how the service is performed
- Place-of-supply provision and any applicable exception
- Whether the service falls within a notified reverse-charge category or a special supplier-side route
- Rate, commencement status of relevant provisions, current reporting procedure, and credit restrictions
CBIC’s sectoral FAQs are useful for illustrations, but an FAQ example should be applied only where the facts match and the legal text remains applicable. For rates, notification coverage, commencement, filing requirements, and credit, verify the official rules for the particular tax period.
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