GST & Indirect Tax

GST on SaaS Subscription Sales by Indian Startups: Notice Triggers, Response Strategy and Penalties

Reviewed by CA Nikhil Gupta · 19 June 2026 GST ✔ cbic-gst.gov.in

Indian SaaS startups face a unique GST complexity: Indian B2B customers (claiming ITC), Indian B2C customers, and foreign customers (export) all coexist on the same subscription platform. GST rate, invoicing rules, place of supply determination and ITC implications differ for each segment. This guide addresses the most common notice triggers and how to respond.

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2-minute answer: every SaaS subscription is taxed at a flat 18% (SAC 998314) regardless of who the customer is - the variable is not the RATE, it is whether the supply qualifies as a zero-rated export under Section 2(6) of the IGST Act (foreign customer, all five conditions met, LUT filed) versus a normal taxable domestic supply. Most SaaS GST notices trace back to getting that export-vs-domestic classification wrong, not to a rate dispute.

Use the Finin2min GST Services Rate Master to apply these points to your figures or facts.

GST Rate on SaaS: 18% Applies

SaaS subscriptions — whether annual, monthly or usage-based — are classified under SAC 998314 (IT software services provided on subscription) and attract GST at 18% (9% CGST + 9% SGST for intrastate; 18% IGST for interstate and exports). There is no concessional rate for SaaS. Startups under ₹20 lakh turnover are exempt but once threshold is crossed, all past subscribers' invoices need not be revised — only prospective billing includes GST.

For the connected rule, example or next step, see GST on Scrap Sales by Manufacturing Units.

Place of Supply and Invoicing Rules

Customer Type	Place of Supply	Tax Applied	Invoice
Indian B2B (GSTIN registered)	Location of recipient (customer state)	CGST+SGST (same state) / IGST (other state)	Tax invoice with customer GSTIN
Indian B2C (unregistered)	Location of recipient	CGST+SGST or IGST	Simplified tax invoice; GSTR-1 B2C reporting
Foreign B2B (overseas company)	Location of recipient (outside India)	Zero-rated under LUT	Export invoice with LUT reference; no IGST
Foreign B2C (individual abroad)	Location of recipient (outside India) — if export conditions met	Zero-rated export under LUT if conditions satisfied; OIDAR import rules apply to foreign suppliers selling into India, not to Indian exporters	Export invoice; LUT reference; no IGST if genuinely exported

For the connected rule, example or next step, see GST Notice Reply Evidence Pack for Startups.

Worked Example: One Invoicing Run, Three Tax Treatments

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Practical example: A SaaS startup bills ₹5,00,000 in a month across three customers on the same plan. Customer A is an Indian GST-registered business in the same state: charge CGST+SGST at 9%+9% (₹90,000 total tax), issue a tax invoice with the customer’s GSTIN so they can claim ITC. Customer B is an unregistered Indian individual in another state: charge IGST at 18% (place of supply is the customer’s state, so it is an interstate supply), report it under GSTR-1 Table B2C. Customer C is a company based in the US paying in USD via wire transfer: if all five Section 2(6) conditions are met and an LUT is on file, this is a zero-rated export - no IGST charged, but the export invoice and FIRC must be retained to prove the foreign-exchange receipt. The SAME ₹5,00,000 billing run therefore produces three different tax outcomes on the same GSTR-1 return.

Common GST Notice Triggers for SaaS Startups

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Top Notice Triggers:
1. Foreign B2C exports incorrectly treated as OIDAR-taxable instead of zero-rated exports, or conversely, exports claimed as zero-rated without satisfying all five Section 2(6) conditions
2. GSTR-1 export turnover not matching foreign exchange received (AIS/bank data mismatch)
3. Raising invoices without GSTIN for Indian B2B customers — ITC blocked for client
4. Charging CGST+SGST on interstate B2B supply instead of IGST — wrong return filing
5. Not filing LUT before first export invoice of the financial year

Response Strategy for a GST Notice on SaaS Revenue

If you receive a GST notice (typically ASMT-10 or DRC-01) on SaaS revenue discrepancy:

Identify the discrepancy: tax period, invoice numbers and the mismatch amount
Reconcile GSTR-1 vs bank foreign exchange receipts vs FIRC register
If the discrepancy is a timing difference (payment received in different month than invoice), prepare a reconciliation statement
If GST was wrongly not charged on OIDAR B2C exports, compute the liability, pay with interest and respond
Respond within the 30-day notice period with documentary evidence (export invoices, FIRC copies, LUT acknowledgement)

FAQ

For the connected rule, example or next step, see GST Rate and Cess Calculator.

Does OIDAR apply when an Indian startup sells SaaS to a foreign individual? +

No — this is a common misunderstanding. OIDAR registration and tax-payment rules under IGST Act target foreign suppliers selling OIDAR services into India to Indian non-taxable online recipients (B2C). They do not apply in reverse. An Indian startup selling SaaS to a foreign individual is making an export of service. If all five conditions under Section 2(6) of the IGST Act are met — supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange (or INR where permitted by RBI), and supplier/recipient not merely establishments of the same person — the supply is a zero-rated export and can be made under LUT without IGST.

How do I handle refunds and subscription cancellations under GST? +

Issue a GST Credit Note within the time limit — 30th November following the end of the financial year, or the date of filing the relevant annual return, whichever is earlier (Section 34(2) of the CGST Act). Deduct the credit note value in GSTR-1 (Table 9B). The customer must reverse ITC proportionate to the credit note received.

Can a SaaS startup use the composition scheme? +

No. The composition scheme is not available for service providers (except those under the ₹50L restaurant/trader scheme). SaaS businesses must register as regular taxpayers and file monthly/quarterly GSTR-1 and GSTR-3B.

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Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: GST & Indirect Tax
Official starting point: www.gst.gov.in

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Primary sources & related provisions

Statutory provisions referenced in this guide: