Implications of GST on Software Export


Many people are confused about GST and its procedures for their software services export business. These are the questions I have encountered:

  1. Procedure about GST on Export
  2. How to prove that supply was for export
  3. How to prove that money received through PayPal is foreign income
  4. What is Input Tax Credit

This is my take on the whole GST thing.

Disclaimer: I am not a tax expert. When in doubt talk to your accountant and do your own research

GST on Export

Export is rated at 0% GST, i.e. there is no GST on export. Lets consider a scenario where you want to send an invoice of $1000 to your customer:

  1. You will send a $1000 invoice only (not add any GST amount, because as mentioned above, export is 0 rated).
  2. But you will be only get the opportunity to prove that your supply was export in your next month’s GST return.
  3. Government wants to complete all accounting for a month in that month itself. What if you weren’t able to prove that money received was for export? Therefore, government wants you to deposit GST amount (IGST @ 18%) for that month, and you can claim credit/refund after proving it was export. Talk to your CA about the relevant GSTR forms
  4. There are two ways of depositing GST amount: LUT/Bond, and GST payable. Read further about LUT here:

Further Reading:

How to prove that supply was for export

Supply is for export if:

  1. Supplier is located within India
  2. Recipient is located outside of India
  3. Place of supply is located outside of India
  4. Payment has been received in convertible foreign exchange. This includes PayPal (see below)

Further Reading:

How to prove that money received via PayPal was for export services

You will need to submit on GST portal, at the minimum:

  1. Invoice
  2. PayPal transaction history
  3. Bank statements

Please note that PayPal is a payment processor and currency convertor, it is not your client. Your supply is deemed as for export if your:

  1. Client is abroad
  2. Your invoice is in foreign currency
  3. Your client paid you in foreign currency

As per latest notification from PayPal ( they are soon going to start conducting their India operations from an Indian entity. It will imply that their services (their fee for processing your money) will fall under GST. That is, they will add GST (at 18%) to their charges. You can claim input tax credit against it (see below).

What is input tax credit (ITC)

gst-1419354Another area where there is maximum confusion and disbelief. First of all, Input Tax Credit (ITC) is not a new concept. It has been around since Sales/Service Tax, and been used (or misused) by many businesses. But the procedure for claiming ITC has been cumbersome and ridden with red-tape. GST makes it simpler. Rationale behind ITC is as follows:

  1. In general, GST is only payable by the end consumer/customer, not the intermediate parties (again, in general)
  2. ITC eliminates the cascading effect on tax, or tax on tax
  3. Tax on your input costs (laagat in Hindi) while conducting your business is creditable/refundable if you meet the norms

ITC may cover following items:

  1. Tax on rent
  2. Tax on internet
  3. Tax on software purchases
  4. Tax on subcontracting done by your supplier/service provider if the end customer is not you, rather its your customer, or onwards (imagine a chain)

At the minimum you need to make sure that invoices made by your suppliers include your GSTIN. And Talk to your tax consultant about process for claiming ITC.

Further reading:


My advice

  1. Get a tax accountant, someone who knows export related GST procedures inside-out
  2. Check your invoice numbers; they need to be GST compliant
  3. Remember the following three truths:
    1. GST on export is 0
    2. Money received via PayPal is foreign money, and PayPal is only a payments processor/currency convertor
    3. Input tax credit is a real thing, use it