InsightsGSTImport of services and RCM under GST
gst

Import of services and RCM under GST

CA Sitaram PareekLast reviewed June 20266 min read

Import of services is taxable in India under reverse charge, with the Indian recipient paying IGST under Section 5(3) of the IGST Act. Even a free import of service from a related foreign party can be taxable. The IGST paid under reverse charge is available as input tax credit if used for taxable business.

⚖️
Income-tax Act 2025 update: Section 195 of the 1961 Act is now Section 393(2) under the new Income-tax Act 2025, effective 1 April 2026. Rates and thresholds discussed below remain applicable unless stated.

When import of services is taxable

An 'import of service' arises where the supplier is outside India, the recipient is in India and the place of supply is in India. Such supplies are taxable under reverse charge: the Indian recipient self-assesses IGST, pays it in cash, and reports it in GSTR-3B Table 3.1(d). This applies to professional fees, software subscriptions, royalties, technical services and similar cross-border purchases.

The related-party and 'free' twist

Under Schedule I, import of services by a person from a related person or an overseas establishment, in the course of business, is taxable even if made without consideration. So a free management or IT service received from a foreign parent or group company can attract IGST under reverse charge on its open-market value. Verify valuation for related-party imports.

OIDAR services

For OIDAR (online information and database access or retrieval) services supplied to a registered recipient, reverse charge applies. Where supplied to a non-taxable online recipient (an unregistered individual), the overseas supplier itself must register and pay tax. This distinction matters for SaaS and digital platforms.

Claiming ITC and compliance

  • Pay IGST under RCM in cash — it cannot be set off using ITC.
  • Issue a self-invoice under Section 31(3)(f) and a payment voucher.
  • Claim the IGST paid as ITC if the service is for taxable business and not blocked.
  • Watch overlap with income-tax TDS under Section 195 and equalisation levy on the same payment.

Key takeaways

  • Import of services is taxed under reverse charge; the recipient pays IGST.
  • Related-party imports can be taxable even when free (Schedule I).
  • OIDAR to unregistered recipients shifts the tax to the overseas supplier.
  • RCM IGST is paid in cash, then claimed as ITC if eligible.

Frequently Asked Questions

Who pays GST on imported services?

The Indian recipient, under reverse charge, pays IGST under Section 5(3) of the IGST Act and can then claim it as input tax credit if the service is used for taxable business.

Is a free service from a foreign parent taxable?

Yes. Under Schedule I, import of services from a related person or overseas establishment in the course of business is taxable even without consideration, on the open-market value.

What about software or SaaS subscriptions from abroad?

These are typically imports of service (often OIDAR) and attract IGST under reverse charge in the hands of a registered recipient.

Related Topics

gst

GST on director's remuneration under RCM

Is GST payable on a director's remuneration? Salary to a whole-time director is outside GST; sitting fees and commission to a non-executive director attract RCM.

gst

Export of services under GST: zero-rated supply

Export of services is a zero-rated supply under GST. The five conditions in Section 2(6) of the IGST Act, the LUT vs pay-IGST routes, and how to claim a refund...

gst

GTA under GST: RCM vs forward charge

Goods Transport Agency under GST - the recipient pays 5% under reverse charge, or the GTA opts for forward charge at 5% (no ITC) or 12% (with ITC).

SP

Written & reviewed by

CA Sitaram Pareek

Chartered Accountant (ICAI) and holder of the Diploma in International Taxation (DIIT-ICAI). Works in-house with a multinational group operating across India, the UAE and Singapore, handling GST compliance, direct tax, transfer pricing, DTAA advisory and FEMA matters. Every article on NumberIQ is written against the bare Act, current CBDT/CBIC notifications and official portals (incometax.gov.in, gst.gov.in, cbic.gov.in).

About NumberIQ →
← Back to all articles