GST on Import of Services Under RCM: Rates, ITC & the Full List of Foreign Services That Trigger It

Almost every modern business imports services without realising it — a card charge for a US cloud platform, a foreign AI subscription, ad spend billed by an overseas entity. Each one can carry a GST liability that the vendor never mentions, because under Indian law you, not the foreign supplier, are the one who has to pay it. This guide covers the statutory position, the rate, how to pay and claim credit, an exhaustive list of the services that trigger it, and the practical questions founders actually ask.

1. What counts as "import of services"

Under Section 2(11) of the IGST Act, 2017, a supply is an import of services when all three of the following are true:

Import of services is taxable in two situations: (a) when received for consideration, whether or not in the course of business; and (b) when received without consideration by a taxable person from a related person or own establishment outside India in the course of business. This second limb comes from Schedule I read with Section 7(1)(b) of the CGST Act, and is the reason intra-group "free" services from a foreign parent or subsidiary can still attract GST.

2. The statutory chain — provision by provision

If a GST officer questions an import-of-service entry, this is the exact ladder of provisions that governs it:

3. The rate: 18% on almost everything

The overwhelming majority of imported services — software, SaaS, cloud infrastructure, digital advertising, design tools, consultancy and other OIDAR (Online Information and Database Access or Retrieval) services — attract 18% IGST.

GST 2.0 note (from 22 September 2025): the GST rate structure was simplified to broadly 5% / 18% / 40% slabs. IT, software, SaaS and OIDAR services remained at 18%. The restructure did not reduce the cost of importing these services — budget the full 18% (recoverable as ITC for taxable businesses).

4. How to compute, pay and report it

The RCM cycle for an imported service runs in five steps:

1. Identify every inward supply from a foreign supplier (recurring SaaS is the most-missed category).
2. Self-invoice within 30 days of receipt (Rule 47A) and raise a payment voucher.
3. Compute 18% IGST on the invoice value (convert foreign currency at the applicable rate on the relevant date).
4. Pay in cash — declare the liability in GSTR-3B Table 3.1(d) and discharge it through the electronic cash ledger. You cannot use accumulated ITC to pay RCM.
5. Claim ITC of the same amount in GSTR-3B Table 4 the same month, if the service is used for business and is not a blocked credit.

Worked example: a Delhi startup subscribes to a US cloud platform for US$5,000/month (about Rs. 4,20,000). IGST under RCM = 18% = Rs. 75,600. The startup pays Rs. 75,600 in cash, then claims Rs. 75,600 as ITC the same month — net GST impact zero, but it must move through the cash ledger first, which is a real working-capital step.

5. Time of supply — which month do you pay in?

Because a foreign supplier is treated as unregistered in India, the time of supply under Section 13(3) is the earlier of the date of payment (as entered in your books or debited from your bank) or the date you issue the self-invoice. Whichever is earlier fixes the GSTR-3B month. For a card-paid monthly subscription, the payment date usually drives it. Delay the self-invoice past 30 days and you risk a general penalty plus interest at 18% per annum on any delayed tax.

6. Input tax credit on RCM — the conditions that actually bite

ITC of the IGST you pay under RCM is available under Section 16, but only if: the service is used in the course or furtherance of business (personal-use tools get no ITC); you have actually paid the tax in cash (ITC follows payment, not accrual); it is not a blocked credit under Section 17(5); and you hold a valid self-invoice as the document evidencing the credit.

Watch the ITC time limit. For RCM supplies, the financial year for the Section 16(4) ITC time limit is the year in which you issue the self-invoice (clarified by CBIC Circular 211/5/2024-GST). Sloppy or back-dated self-invoicing can quietly cost you the credit. And if the service is used only for exempt supplies or personal purposes, the RCM tax is a pure cost — there is no ITC to offset it, which is what hurts freelancers and proprietors who buy foreign tools partly for personal use.

7. The exhaustive list: foreign services that trigger RCM

If the supplier is outside India and has no Indian GSTIN, each of the following typically attracts 18% IGST under RCM. Use this as a compliance checklist.

AI tools & subscriptions

Digital marketing & advertising

Note: the 6% Equalisation Levy on digital advertising was abolished from 1 April 2025, but that does not remove your GST RCM obligation on imported ad services — the two are different levies.

Software & SaaS

Cloud, hosting & infrastructure

Content, media & learning

Professional & technical services

A typical seed-stage Delhi startup easily runs 10–20 of these subscriptions. Each monthly charge is a separate import of service. Missing them is the single most common RCM error — and it is exactly what GST audits now flag through return and ledger matching.

8. When RCM does NOT apply to a foreign service

Not every payment to a foreign supplier triggers RCM. The exceptions all turn on place of supply falling outside India, or on the recipient being a consumer rather than a business:

• Services connected to immovable property abroad (Section 13(4)) — e.g. a hotel stay or property work outside India. Place of supply is where the property is.
• Admission to or services at an event held abroad (Section 13(5)) — place of supply is the event location.
• Intermediary / pure commission services — historically the place of supply was the supplier's location (Section 13(8)(b)), keeping foreign commission agents outside RCM. This is under change: the GST 2.0 reform revised the intermediary place-of-supply rule, so whether a given foreign commission or intermediary arrangement now attracts RCM must be checked on its specific facts against the current notification. Do not assume the old exemption still holds.
• OIDAR services to an unregistered consumer (B2C) — here the liability flips to the foreign supplier, who must take simplified registration and pay; it is not your RCM. For B2B, RCM stays with you.

9. Common mistakes that cost businesses money

• Treating recurring SaaS as "just a card expense" and never running RCM on it.
• Assuming a small turnover means no RCM — it does not (Section 24).
• Trying to pay RCM by setting off existing ITC instead of cash.
• Skipping the self-invoice, then losing ITC on a technicality.
• Believing PayPal or a credit card sidesteps GST — it does not.
• Forgetting that GST (RCM) and income-tax TDS under Section 195 are separate questions on the same payment.

10. Beyond GST: the TDS angle in one line

RCM answers the GST question; it does not answer income tax. Standardised, off-the-shelf software bought without any transfer of copyright is generally not royalty (following the Supreme Court's Engineering Analysis ruling), so usually no TDS under Section 195. But customised software, copyright transfers, or technical know-how can be royalty or fees for technical services and may attract TDS. Treat the TDS question separately for each foreign payment.

How Startup Advisory Can Help

Startup Advisory is a CA-led firm in Saket, New Delhi that helps businesses across Delhi NCR get import-of-service RCM right instead of discovering it during an audit. We can:

• Review your foreign-supplier subscriptions and build a master RCM checklist as part of our bookkeeping service.
• Set up compliant self-invoicing and the correct GSTR-3B entries (Table 3.1(d) and Table 4).
• Handle notices, ITC issues and complex cross-border transactions through GST advisory.
• Give founders a named expert who owns the whole compliance calendar — see also our GST & TDS compliance calendar 2026.

Call 9311972982 or book a free consultation.