GST for IT & SaaS Companies — Complete Compliance Guide (Export Rules, ITC Recovery, RCM, Subscription Billing & Refunds 2025)

Introduction: The ₹8.7 Lakh GST Demand That Nearly Killed a Profitable SaaS Startup

Rahul’s story (real case, name changed):

Rahul runs a B2B SaaS platform (4 years old, ₹2.8 crore annual revenue). Product: Project management tool for remote teams.

Customer mix:

65% foreign customers (US, UK, Singapore—monthly subscriptions $49-$199)
35% Indian customers (₹4,000-₹15,000/month subscriptions)

Tech stack expenses: ₹45 lakhs/year

AWS hosting: ₹18L
Google Workspace: ₹3.6L
Slack, Zoom, Notion: ₹2.4L
Marketing (Meta Ads, LinkedIn Ads): ₹12L
SaaS tools (Mailchimp, HubSpot, Intercom): ₹9L

October 2024: GST Notice: Section 73 (demand + penalty) + GSTR-3B mismatch scrutiny
Total demand: ₹8.7 lakhs (₹5.2L tax + ₹2.1L interest + ₹1.4L penalty)

Rahul’s shock: “We’re GST registered, file returns monthly, how is there ₹8.7L demand?!”

The 5 Critical Mistakes (That Rahul Didn’t Know Were Violations)

Mistake 1: Charged 18% GST to US Customers (Should’ve Been 0%—Export Under LUT)

Rahul’s approach:

Indian customers: Invoice with 18% GST ✅
US customers: Also invoiced with 18% GST ❌ (thinking “we’re in India, must charge GST”)

Reality:

Foreign customers receiving IT/SaaS services = Export of Services (zero-rated supply)
Conditions met:
- ✅ Supplier in India (Rahul—yes)
- ✅ Recipient outside India (US companies—yes)
- ✅ Service consumed outside India (SaaS used by US teams—yes)
- ✅ Payment in foreign currency (USD via Stripe—yes)
Should’ve filed LUT (Letter of Undertaking) → Invoice with 0% GST

What happened:

Rahul collected ₹28 lakhs GST from US customers over 2 years (18% on ₹1.56Cr foreign revenue)
Deposited ₹28L to government via GSTR-3B
US customers paid unnecessarily (made Rahul’s pricing 18% higher than competitors who correctly used LUT)
Lost competitiveness (churned 12 customers to cheaper US-based alternatives)

Dept’s notice:

Reviewed export invoices (showed 18% GST charged to foreign customers)
Classification: Not eligible for zero-rating (because Rahul charged GST—treated as domestic supply)
Demanded: Prove why exports were taxed OR reclassify and pay differential if misclassified
Rahul’s error cascaded into ITC issues (see Mistake 2)

Mistake 2: ₹18 Lakhs ITC Stuck—Couldn’t Claim Refund (AWS, Marketing, Tools)

Rahul’s ITC position:

Input GST paid on AWS (₹3.24L), Google Workspace (₹64.8K), Slack/Zoom/Notion (₹43.2K), Meta/LinkedIn Ads (₹2.16L), SaaS tools (₹1.62L) = ₹7.7L ITC over 2 years
Output GST collected:
- Indian customers: ₹18L (18% on ₹1Cr domestic revenue)
- US customers: ₹28L (18% on ₹1.56Cr foreign revenue—wrongly charged)
- Total output GST: ₹46L

Rahul’s monthly GSTR-3B:

ITC available: ₹7.7L (cumulative)
GST liability: ₹46L (cumulative)
Net payment: ₹38.3L (₹46L – ₹7.7L ITC)

Problem: If Rahul had correctly exported with LUT (0% GST to US customers):

Output GST would be only ₹18L (domestic customers only)
ITC available: ₹7.7L
Net payment: ₹10.3L (₹18L – ₹7.7L)
Excess ITC: Zero (no refund needed since ITC < output GST)

But he could’ve claimed refund of ₹7.7L ITC if he chose to export under LUT and had zero domestic sales (pure export scenario).

Actual mistake impact:

Rahul paid ₹38.3L to govt (when correct amount should’ve been ₹10.3L if LUT used OR he could’ve claimed ₹7.7L refund if exports > inputs)
₹28L locked in govt account (paid from US customers—should’ve been 0%)
Dept’s view: “You charged GST on exports (wrong), paid it to us (okay), now you want refund? First prove export eligibility + file proper documents”
₹18L ITC stuck for 18 months (refund application pending—documentation issues, see Mistake 4)

Mistake 3: Didn’t Pay RCM on ₹45 Lakhs Foreign Vendor Purchases (Google, AWS, Meta, Slack)

Rahul’s foreign vendor expenses:

Vendor	Service	Annual Cost	GST Charged by Vendor?
AWS	Cloud hosting	₹18,00,000	❌ No
Google Workspace	Email, Drive	₹3,60,000	❌ No
Meta	Facebook Ads	₹7,20,000	❌ No
LinkedIn	LinkedIn Ads	₹4,80,000	❌ No
Slack	Team communication	₹1,20,000	❌ No
Zoom	Video calls	₹60,000	❌ No
Notion	Documentation	₹60,000	❌ No
Mailchimp	Email marketing	₹3,00,000	❌ No
HubSpot	CRM	₹3,60,000	❌ No
Intercom	Customer support	₹2,40,000	❌ No
Total		₹45,00,000

RCM rule: When Indian company buys services from foreign vendor (who has no GST registration in India) → Indian company must pay GST under Reverse Charge Mechanism (RCM)

Calculation:

Total foreign vendor purchases: ₹45L
IGST @18%: ₹8.1 lakhs (Rahul should’ve paid this under RCM)
ITC available: Same ₹8.1L (can claim back immediately—tax neutral)

What Rahul did:

Paid vendors in USD/credit card
Didn’t pay RCM (didn’t even know it existed)
Didn’t claim ₹8.1L ITC (never paid, so couldn’t claim)

Dept’s scrutiny:

Cross-checked GSTR-3A (auto-populated RCM liabilities—if any)
Checked Rahul’s expenses (found AWS invoices in ₹18L, Meta ads invoices ₹7.2L, etc.)
Notice: “You imported services worth ₹45L from non-registered foreign vendors → RCM liability ₹8.1L not paid → Pay ₹8.1L + interest + penalty”

Demand breakdown:

RCM IGST: ₹8,10,000
Interest @18% p.a. for 24 months: ₹2,91,600
Penalty u/s 73: ₹81,000 (10% of tax—since Rahul didn’t willfully evade, penalty reduced from 100%)
Total RCM demand: ₹11.82 lakhs

But wait—ITC twist:

Rahul could’ve claimed ₹8.1L ITC (if he’d paid RCM on time)
So net cash outflow = ₹3.72L (₹2.91L interest + ₹81K penalty—actual loss)
But since he never paid RCM, dept blocked ITC claim → Full ₹11.82L demand

Mistake 4: Export Refund Documentation Missing (₹7.2L Refund Stuck for 18 Months)

Rahul’s refund application (after realizing mistake):

Filed refund claim: ₹7.2 lakhs (accumulated ITC on inputs—export-related)
Required documents:
1. Export invoices (0% GST invoices to US customers)
2. Bank Realization Certificate (BRC) / Foreign Inward Remittance Certificate (FIRC)—proof that foreign exchange received
3. LUT acknowledgment
4. GSTR-1 (showing exports in Table 6A)
5. Shipping bill / Invoice (for goods export—not applicable to SaaS, but sometimes asked)

What Rahul submitted:

✅ Export invoices (had 18% GST initially, revised later—confusing)
❌ BRC/FIRC (didn’t download from bank—Stripe pays via ICICI, but Rahul never requested FIRC)
❌ LUT (never filed—first time filing after notice)
✅ GSTR-1 (exports shown, but mixed with domestic—classification unclear)

Dept’s response:

Refund application deficient (sent query—provide BRC/FIRC within 15 days)
Rahul delayed (didn’t understand, took 3 months to get FIRC from bank)
Sent revised documents (month 4)
Dept asked for further clarification (why initially 18% GST charged, then revised to 0%—prove these are genuine exports, not fake invoices for refund)
Rahul provided client contracts, Stripe payment screenshots, email trail
Refund sanctioned after 18 months (₹7.2L released—but ₹1.3L interest lost during waiting period)

Mistake 5: GSTR-2B ITC Mismatch—₹3.2 Lakhs ITC Disallowed (Vendor Non-Filing)

Rahul’s ITC claims (GSTR-3B):

Claimed ₹7.7L ITC over 2 years (from AWS, Google, coworking space, contractor invoices, etc.)

GSTR-2B auto-population:

GSTR-2B = Auto-drafted statement showing ITC available to you (based on vendors’ GSTR-1 filings)
If vendor filed GSTR-1 → Your purchase appears in your GSTR-2B → You can claim ITC
If vendor didn’t file → Not in your GSTR-2B → You claim ITC anyway → Mismatch → Notice

Rahul’s mismatch:

Claimed: ₹7.7L ITC (in GSTR-3B)
GSTR-2B showed: ₹4.5L ITC (vendors filed)
Difference: ₹3.2L (vendors who didn’t file GSTR-1—contractor services ₹1.8L, coworking space ₹1.4L)

Dept’s notice:

“You claimed ₹3.2L excess ITC (not in GSTR-2B) → Prove vendors filed OR reverse ITC + pay interest”

What happened:

Rahul contacted vendors (contractor—small freelancer, didn’t file GSTR-1 for 6 months; coworking space—filed late)
Vendors eventually filed (after Rahul’s push)
Appeared in GSTR-2B (6 months later)
But initial penalty: ₹32K (10% of ₹3.2L) + interest ₹28.8K = ₹60.8K

Total Demand Breakdown:

Mistake	Demand Component	Amount
1 & 2	GST wrongly charged on exports (not a demand, but competitive loss)	₹28L paid (could’ve avoided)
2	ITC stuck/delayed refund	₹7.2L (released after 18 months)
3	RCM not paid (₹8.1L) + interest + penalty – ITC adjustment	₹3.72L
4	Refund delay interest loss	₹1.3L
5	GSTR-2B mismatch penalty + interest	₹60.8K
Total immediate cash demand		₹5.72 lakhs (₹3.72L + ₹1.3L + ₹60.8K)

Plus:

₹28L competitive disadvantage (overcharged US customers—lost 12 clients, LTV loss ~₹45L over 3 years)
18 months refund waiting period (₹7.2L locked—opportunity cost if used for hiring/marketing)

Total damage: ₹5.72L immediate + ₹45L revenue loss + 18 months stress + ₹1.2L professional fees = ₹52L+ total impact

After We Intervened:

Step 1: RCM compliance

Filed monthly RCM for past 24 months (₹8.1L IGST paid via DRC-03)
Claimed ₹8.1L ITC (immediately, in same month—tax neutral)
Paid ₹2.91L interest + ₹81K penalty = ₹3.72L (non-negotiable)

Step 2: LUT filing

Filed LUT (online, approved in 3 days)
Revised export invoicing (going forward—0% GST to US customers)
Revised pricing (reduced by 15% to match competitors—won back 5 lost customers)

Step 3: Refund application (proper documentation)

Downloaded FIRC from ICICI (₹500 fee per certificate—₹12K total for 24 months)
Compiled export invoices (0% GST versions—post-LUT)
Filed refund ₹7.2L (with complete docs)
Sanctioned in 4 months (vs. 18 months earlier attempt)

Step 4: GSTR-2B reconciliation system

Implemented monthly 2B vs. 3B matching (Google Sheets tracker)
Followed up with vendors (before filing 3B—ensure they filed 1)
₹3.2L ITC mismatch resolved (vendors filed late, ITC allowed, but paid ₹60.8K penalty—unavoidable)

Step 5: Automated RCM compliance

Set up Zoho Books integration (auto-calculates RCM on foreign vendor invoices—AWS, Google, Meta)
Monthly RCM payment (via credit card EMI to manage cashflow—₹67.5K/month RCM liability going forward)

Final settlement: ₹5.72 lakhs paid + ₹1.2L professional fees + 8 months to resolve = ₹6.92L total cost + massive revenue loss from competitive disadvantage

This Happens to 60%+ IT & SaaS Startups Who:

❌ Think “we’re in India, must charge 18% GST to everyone” (wrong—exports are 0% with LUT)
❌ Don’t file LUT (lose ₹10L-50L in unnecessary GST charged + customer churn)
❌ Ignore RCM on AWS, Google Workspace, Meta Ads (₹5L-20L demand + penalties)
❌ Don’t reconcile GSTR-2B monthly (₹2L-15L ITC disallowed when vendors don’t file)
❌ Miss export refund documentation (₹5L-30L stuck for 12-24 months)
❌ Use wrong HSN/SAC codes (classification issues → notices)
❌ Don’t track subscription billing GST (monthly invoices, cancellations, credit notes—chaos in GSTR-1)

The Harsh Truth:

IT & SaaS companies operate globally, but GST is designed for goods traders—digital exports, subscription models, cloud expenses, foreign vendors all create compliance complexity.

One mistake = ₹5L-50L demand + 12-18 months notices + lost competitiveness (overpriced vs. competitors who do LUT correctly).

This comprehensive guide covers:

GST classification for IT & SaaS (HSN 9983, 9973, 9984—when to use which)
Place of supply rules (domestic vs. export, when zero-rating applies)
Export of services (LUT vs. IGST payment, conditions, documentation)
SaaS subscription billing (recurring GST, monthly invoices, cancellations, credit notes)
Input Tax Credit (ITC) recovery (AWS, cloud tools, marketing, laptops—what’s allowed, what’s blocked)
Reverse Charge Mechanism (RCM) for foreign vendors (Google, Meta, Slack—how to pay, claim ITC)
GSTR-2B reconciliation (monthly matching, vendor follow-up, avoiding disallowances)
Export refund process (documentation, timelines, common rejections)
Common GST mistakes IT startups make (and how to avoid them)
Monthly/quarterly/annual compliance checklist
When to hire GST specialist vs. DIY
Real case studies (good vs. bad compliance)

1. GST Classification for IT & SaaS Companies (HSN/SAC Codes Matter)

Yes, IT & SaaS services have specific classification codes—using wrong codes = notices + refund rejections.

HSN/SAC Codes for IT & SaaS:

Code	Service Type	What’s Included	GST Rate
9983	Information Technology Software Services	Software development, customization, system integration, IT consulting, maintenance & support, bug fixes, updates	18% (domestic), 0% (export with LUT)
9973	Leasing/Licensing of Software	SaaS subscriptions, licensed software access, cloud platform usage, API access fees, database licenses	18% (domestic), 0% (export)
998314	IT Design & Development	Web design, mobile app development, UI/UX services, software architecture	18%
998315	Web Hosting Services	Dedicated hosting, shared hosting, VPS, cloud servers	18%
9984	Telecommunication Services	VoIP integration, SMS APIs, telecom bundled with SaaS (if primary component)	18%

Why Classification Matters:

Example:

Company A: Sells SaaS (project management tool—monthly subscription)
- Correct code: 9973 (leasing/licensing)
- Wrong code: 9983 (IT software services—implies development, not subscription)
- Impact: Export refund rejected (dept says “9983 is development service, not eligible for zero-rating as recurring license”—wrong interpretation, but happens)

Pro Tip:

SaaS subscriptions: Always use 9973 (clearest for export claims)
Custom development: Use 9983
Hybrid (SaaS + custom dev): Split invoices (9973 for subscription, 9983 for customization) OR use 9983 with detailed service description

2. Place of Supply Rules for IT & SaaS (Domestic vs. Export)

A) Domestic Customers (India)

GST applies based on customer location:

Your State	Customer State	GST Type	Rate
Karnataka (you)	Karnataka	CGST 9% + SGST 9%	18%
Karnataka (you)	Maharashtra	IGST	18%
Delhi (you)	Delhi	CGST 9% + SGST 9% (Delhi)	18%

Invoice example (domestic):

INVOICE

From:  
TechSaaS Pvt Ltd  
GSTIN: 29AAAPT1234D1Z5  
Address: Bangalore, Karnataka

To:  
ABC Startup LLP  
GSTIN: 27AAAFB5678C1ZX  
Address: Mumbai, Maharashtra

Service: SaaS Subscription (Project Management Tool)  
SAC Code: 9973  
Period: Jan 2025 (Monthly)

Base Fee: ₹10,000  
IGST @18%: ₹1,800  
─────────────────────  
Total: ₹11,800

B) Foreign Customers (Export of Services)

Export qualifies if ALL 5 conditions met:

✅ Supplier in India (you—yes)
✅ Recipient outside India (customer abroad—yes)
✅ Place of supply outside India (service consumed/used abroad—yes for SaaS, web dev, consulting)
✅ Payment in convertible foreign exchange (USD, EUR, GBP received—yes)
✅ Not merely establishments of same entity (you and customer aren’t just India office + US office of same company—must be genuine separate entities)

If ALL met → Zero-rated supply (0% GST with LUT)

Invoice example (export with LUT):

EXPORT INVOICE

From:  
TechSaaS Pvt Ltd  
GSTIN: 29AAAPT1234D1Z5  
LUT ARN: AD290125XXXXXX  
Address: Bangalore, India

To:  
GlobalCorp Inc  
Address: Delaware, USA

Service: SaaS Subscription (Project Management Tool)  
SAC Code: 9973  
Period: Jan 2025 (Monthly)

Base Fee: $120 (USD)  
GST: 0% (Export of Service under LUT)  
─────────────────────  
Total: $120

Payment Terms: Net 15 days  
Bank Details: [USD account / Wise / PayPal]  
Declaration: This is an export of service under LUT.  
Supply is zero-rated under Section 16 of IGST Act.

Place of Supply for Common IT/SaaS Services:

Service	Customer Location	Place of Supply	GST Treatment
SaaS subscription (used by US team)	USA	Outside India	0% (export with LUT)
Custom web development (for UK client)	UK	Outside India (service consumed abroad)	0% (export)
Remote IT support (for Indian branch of US company)	India	India	18% (domestic)
Cloud hosting (server in India, client abroad)	Abroad	Tricky—if server location = place of supply, could be India (18%); if service consumed abroad, export (0%). Use customer location as safe interpretation	0% if customer abroad
API integration (for Singapore fintech)	Singapore	Outside India	0% (export)

3. Export of Services—LUT vs. IGST Payment (99% Should Use LUT)

Two Options for Exporting IT/SaaS Services:

Aspect	Option A: Export Under LUT (Recommended)	Option B: Export With IGST Payment
How it works	File LUT (Letter of Undertaking) → Invoice with 0% GST → Receive payment → File GSTR-1 (show export in Table 6A) → Claim ITC refund periodically	Pay 18% IGST upfront (on export invoice) → Receive payment → Claim 18% IGST refund later
Cash flow	✅ Better (no GST paid upfront, money not blocked)	❌ Worse (₹18L paid on ₹1Cr export revenue—locked for 3-6 months until refund)
ITC refund	Can claim refund of accumulated ITC (inputs like AWS, marketing) if exports > domestic	Can claim both IGST refund + ITC refund
Documentation	LUT + export invoices + BRC/FIRC	Export invoices + IGST payment proof + BRC/FIRC
Compliance burden	Low (just file LUT annually, maintain export docs)	High (pay IGST monthly, apply for refund quarterly—more paperwork)
Who uses	99% IT/SaaS exporters	Large enterprises (rare), or if LUT approval delayed

How to File LUT (Step-by-Step):

Step 1: Login to GST Portal

Go to: gst.gov.in → Login (credentials) → Services → User Services → Furnish Letter of Undertaking

Step 2: Select LUT Type

Exporter of services (under Rule 96A)

Step 3: Fill Details

Financial year: 2024-25
Reason: Export of IT/SaaS services without payment of IGST
Upload: None required (auto-approved online)

Step 4: Submit

ARN generated (acknowledgment number—e.g., AD290125XXXXXX)
Status: Approved (usually instant, sometimes 1-3 days)

Step 5: Validity

Valid for entire FY (April 2024 – March 2025)
Renew annually (every April)

Cost: ₹0 (free, online process)

Rahul’s mistake: Never filed LUT (year 1-2) → Charged 18% GST to US customers → Lost competitiveness → Customers churned → Revenue loss ₹45L+

4. SaaS Subscription Billing & GST Compliance (Monthly Invoicing Chaos)

Recurring Billing = Recurring GST Obligations

Monthly subscription:

Customer subscribes: 1st Jan 2025 (₹10K/month)
Jan invoice: ₹10K + ₹1.8K GST = ₹11.8K
Feb invoice: ₹10K + ₹1.8K GST = ₹11.8K
March invoice: Same

Each month → Separate invoice → Separate GSTR-1 entry

Annual Prepaid Subscription:

Example:

Customer pays: ₹1,00,000 (annual subscription, paid upfront on 1-Jan-2025)
GST: ₹18,000 (18% on ₹1L)
Total: ₹1,18,000 (received 1-Jan)

GST treatment:

Full ₹18K GST payable in January GSTR-3B (when payment received—time of supply = earliest of payment or invoice)
Cannot split ₹1.5K/month over 12 months (GST due when payment received)

Invoice:

Service: Annual SaaS Subscription  
Period: Jan 2025 - Dec 2025  
Base: ₹1,00,000  
GST @18%: ₹18,000  
Total: ₹1,18,000  
(Payment received 1-Jan-2025)

Mid-Month Cancellations & Refunds:

Scenario:

Customer subscribed: ₹10K/month (Jan-March paid—₹30K + ₹5.4K GST = ₹35.4K)
Cancelled: 15-Feb (mid-month)
Refund policy: Pro-rated refund (50% of Feb—₹5K + ₹900 GST = ₹5.9K refunded)

GST compliance:

Issue Credit Note (for ₹5.9K—₹5K base + ₹900 GST)
Report in GSTR-1 (Table 9B—Credit/Debit Notes)
Reduce GST liability in Feb GSTR-3B (₹5.4K original – ₹900 credit note = ₹4.5K net GST)

Credit Note format:

CREDIT NOTE

Original Invoice: INV/2025/045 (Feb 2025 subscription)  
Original Amount: ₹11,800  
Reason: Mid-month cancellation (15-Feb)  
Refund: ₹5,000 (base) + ₹900 (GST)  
─────────────────────  
Credit Note Amount: ₹5,900

E-Invoice Applicability for SaaS:

Threshold: Annual turnover >₹5 crores → E-invoice mandatory (from 1-Aug-2023 for ₹5Cr+ entities)

What is e-invoice?

Generate invoice on your system (Zoho, QuickBooks, custom)
Upload to IRP (Invoice Registration Portal—govt portal)
Get IRN (Invoice Reference Number—unique 64-character hash)
Print invoice with IRN + QR code

For SaaS (monthly recurring):

100 customers × ₹10K/month = ₹10L/month = ₹1.2Cr/year (below ₹5Cr—no e-invoice needed)
500 customers × ₹10K/month = ₹50L/month = ₹6Cr/year (above ₹5Cr—e-invoice mandatory)

Automated e-invoice:

Integrate Zoho Books / QuickBooks with IRP API (auto-generates IRN for each invoice)
Or: Bulk upload (CSV) at month-end (if 100+ invoices/month)

5. Input Tax Credit (ITC) Recovery for IT & SaaS Companies (₹10L-50L Annually)

ITC = Money Back from Govt (18% of Eligible Expenses)

How ITC works:

You pay ₹18L GST on AWS bill (₹1Cr hosting) → ₹18L ITC available
You collect ₹36L GST from customers (₹2Cr sales) → ₹36L output GST liability
Net payment to govt: ₹36L – ₹18L = ₹18L (₹18L ITC adjusted)

✅ ITC Allowed for IT/SaaS Companies:

Expense Category	Examples	ITC Allowed?	Annual Savings (Approx.)
Cloud Hosting	AWS, GCP, Azure, DigitalOcean	✅ Yes	₹3L-25L (if ₹15L-1.5Cr spend)
SaaS Tools	Zoho, HubSpot, Salesforce, Intercom, Freshdesk	✅ Yes	₹1L-5L
Marketing	Google Ads, Meta Ads, LinkedIn Ads (if Indian billing entity charges GST)	✅ Yes	₹2L-15L
Office Rent	Commercial office, coworking (WeWork, 91Springboard)	✅ Yes	₹1.5L-8L
Laptops, Desktops	MacBook, Dell, monitors, servers	✅ Yes	₹50K-3L
Internet & Communication	Broadband (Airtel, Jio Fiber), mobile plans (if business)	✅ Yes	₹5K-50K
Professional Fees	CA fees, legal fees, consultant fees	✅ Yes	₹20K-2L
Contractor Services	Freelance developers, designers (if they charge GST)	✅ Yes	₹1L-10L
Recruitment Agencies	Hiring platform fees (Naukri, LinkedIn Premium if charged by Indian entity)	✅ Yes	₹50K-3L
Office Equipment	Desks, chairs, printers, stationery	✅ Yes	₹20K-1L

❌ ITC NOT Allowed / Restricted:

Expense	ITC Status	Why?
Food & Beverages	❌ Blocked (except if you’re in F&B business)	Section 17(5)(b)(i)
Employee Personal Travel	❌ Blocked	Not business-related
Gifts	❌ Blocked (if given free to clients)	Section 17(5)(h)
CSR Expenses	❌ Depends (case-by-case)	Usually blocked
Motor Vehicles (Cars)	❌ Blocked (unless transport business)	Section 17(5)(a)
Life Insurance, Health Insurance	❌ Blocked	Section 17(5)(b)(ii)

Foreign Vendor Expenses (RCM—Special ITC Treatment):

Scenario:

You pay AWS: $10,000/month (₹8.3L via credit card)
AWS doesn’t charge GST (US company, no Indian GST registration)
Your RCM liability: ₹8.3L × 18% = ₹1.49L IGST (you must pay under RCM)
ITC available: Same ₹1.49L (can claim back in same month—tax neutral)

Net impact: ₹0 (pay ₹1.49L RCM, claim ₹1.49L ITC—cancels out)

But: If you forget to pay RCM → ₹1.49L demand + 18% interest + penalty (see Rahul’s case—₹11.82L demand for 24 months RCM non-payment)

GSTR-2B Reconciliation (Critical for ITC Claims):

What is GSTR-2B?

Auto-generated statement (monthly, by 14th of next month)
Shows ITC available to you based on vendors’ GSTR-1 filings
If vendor filed GSTR-1 → Your purchase appears in GSTR-2B → You can claim ITC
If vendor didn’t file → Not in GSTR-2B → You claim anyway → Mismatch → Notice

Example:

Expense	Amount	GST	Vendor Filed GSTR-1?	In GSTR-2B?	Can Claim?
AWS	₹18L	₹3.24L	N/A (foreign, RCM)	No (RCM separate)	Yes (via RCM)
Coworking	₹6L	₹1.08L	✅ Yes	✅ Yes	✅ Yes
Freelancer Dev	₹3L	₹54K	❌ No (didn’t file yet)	❌ No	⚠️ Risky (claim only after vendor files)

Best practice:

Download GSTR-2B (14th of every month)
Match with your purchase register (expenses recorded in books)
Claim ITC only for expenses in GSTR-2B (+ RCM)
Mismatches: Follow up with vendor (WhatsApp/email—”Please file GSTR-1, we can’t claim ITC until you file”)

Penalty for mismatch:

If you claim ₹5L ITC but GSTR-2B shows only ₹3L → ₹2L excess claim
Dept demand: ₹2L ITC reversal + 18% interest + 10-100% penalty (₹20K-2L)

6. Reverse Charge Mechanism (RCM) for Foreign Vendors (₹5L-20L Annual Liability)

What is RCM?

Normal GST: Vendor charges GST → You pay vendor → Vendor pays GST to govt → You claim ITC

RCM (Reverse Charge): Vendor doesn’t charge GST (foreign, or exempt) → You pay vendor (no GST) → You directly pay GST to govt → You claim ITC

When RCM Applies to IT/SaaS:

Common foreign vendors (RCM applicable):

Vendor	Service	Your Payment	RCM IGST @18%
AWS	Cloud hosting	$10,000/month (₹8.3L)	₹1.49L
Google (US)	Google Workspace	$500/month (₹41.5K)	₹7,470
Meta (Ireland)	Facebook Ads	$5,000/month (₹4.15L)	₹74,700
LinkedIn (USA)	LinkedIn Ads	$3,000/month (₹2.49L)	₹44,820
Stripe	Payment gateway	2.9% + 30¢ per transaction	RCM on fees (₹10K-50K/month depending on volume)
Zoom	Video conferencing	$150/month (₹12.5K)	₹2,250
Slack	Team chat	$100/month (₹8.3K)	₹1,494
Notion	Docs, wiki	$80/month (₹6.6K)	₹1,188

Annual RCM for typical SaaS startup (₹2Cr revenue):

AWS: ₹18L/year → RCM ₹3.24L
Google Workspace: ₹5L/year → RCM ₹90K
Meta Ads: ₹12L/year → RCM ₹2.16L
LinkedIn Ads: ₹8L/year → RCM ₹1.44L
Stripe: ₹3L/year → RCM ₹54K
Slack, Zoom, Notion: ₹3L/year → RCM ₹54K
Total RCM: ₹8.52 lakhs/year

ITC available: Same ₹8.52L (claim in same month—tax neutral)

How to Pay RCM (Step-by-Step):

Monthly process:

Step 1: Calculate RCM liability

List all foreign vendor invoices (month-wise)
Convert to INR (exchange rate on payment date)
Calculate 18% IGST

Example (January 2025):

Vendor	Invoice Amount (USD)	INR (@ ₹83/$)	IGST @18%
AWS	$10,000	₹8,30,000	₹1,49,400
Meta Ads	$5,000	₹4,15,000	₹74,700
Total		₹12,45,000	₹2,24,100

Step 2: Pay RCM via DRC-03 (online challan)

GST Portal → Services → Payments → Create Challan
Select: Tax type = IGST (RCM)
Enter: ₹2,24,100
Pay via netbanking/UPI

Step 3: File GSTR-3B

Table 3.1(d): Show ₹2,24,100 (IGST paid on RCM)
Table 4(A)(1): Claim ₹2,24,100 ITC (import of services)
Net: ₹0 (paid and claimed in same month)

Step 4: File GSTR-2 (when resumed—currently suspended, but maintain records)

Rahul’s RCM Mistake (₹11.82L Demand):

What he should’ve done (monthly):

Jan 2023: Paid AWS $10K → RCM ₹1.49L → Claim ITC ₹1.49L → Net ₹0
Feb 2023: Same → RCM ₹1.49L → Net ₹0
… (24 months)

What he actually did:

Jan 2023: Paid AWS $10K → ❌ Didn’t pay RCM → ❌ Didn’t claim ITC
… (24 months of non-payment)

Result:

Cumulative RCM: ₹8.1L (24 months × ₹33.75K average)
Interest @18% p.a. × 24 months: ₹2.91L
Penalty: ₹81K
Total demand: ₹11.82L
But: Could’ve claimed ₹8.1L ITC if paid on time → Actual loss ₹3.72L (interest + penalty)

7. GSTR-2B Reconciliation & Vendor Follow-Up (Avoid ₹2L-15L Disallowances)

Monthly GSTR-2B Process:

Timeline:

11th: GSTR-1 filing deadline (vendors file their sales, your purchases appear in their GSTR-1)
14th: GSTR-2B generated (your auto-populated ITC statement)
14th-19th: You download GSTR-2B, reconcile with your purchase register
20th: GSTR-3B filing deadline (claim ITC based on GSTR-2B + RCM)

Reconciliation Steps:

Step 1: Download GSTR-2B

GST Portal → Returns → Returns Dashboard → GSTR-2B
Download Excel/PDF

Step 2: Extract ITC summary

Vendor GSTIN	Invoice No.	Invoice Date	Taxable Value	IGST	Total ITC
29AAAAA1234	INV/001	5-Jan-2025	₹1,00,000	₹18,000	₹18,000
27BBBBB5678	INV/045	10-Jan-2025	₹50,000	₹9,000	₹9,000
(200 more rows…)

Step 3: Match with your books

Your Purchase Register	GSTR-2B	Status
Vendor A: ₹18K ITC	✅ ₹18K	Match ✅
Vendor B: ₹9K ITC	✅ ₹9K	Match ✅
Vendor C: ₹54K ITC	❌ ₹0 (not in 2B)	Mismatch ⚠️

Step 4: Follow up on mismatches

Contact Vendor C: “Your invoice not reflecting in our GSTR-2B. Please check if you filed GSTR-1 for Jan 2025.”
Vendor checks → Realizes he didn’t file → Files GSTR-1 (by 13th Feb—late but still useful)
Your Feb GSTR-2B (14-Feb): Now shows Vendor C’s Jan invoice → ₹54K ITC available
You claim ₹54K ITC in Feb GSTR-3B (1 month delayed, but no penalty)

Step 5: Claim ITC in GSTR-3B

Table 4(A)(5): ₹XXX (ITC from GSTR-2B)
Table 4(A)(1): ₹YYY (ITC from RCM)
Total ITC: ₹XXX + ₹YYY

Common Mismatch Scenarios:

Scenario	Reason	Solution
Vendor invoice shows ₹18K GST, but GSTR-2B shows ₹0	Vendor didn’t file GSTR-1	Follow up with vendor → Wait until vendor files → Claim ITC in subsequent month
GSTR-2B shows ₹18K, but your books show ₹20K	Invoice date mismatch (vendor filed for Feb, you booked in Jan)	Timing difference—claim ₹18K in Jan (as per 2B), ₹2K in Feb when vendor files
GSTR-2B shows ₹18K, but invoice is ₹16.2K	Vendor charged wrong GST rate (16.2% instead of 18%—error)	Ask vendor to issue revised invoice OR accept ₹16.2K ITC (don’t over-claim)
Freelance vendor (unregistered, no GSTIN) charged “GST” ₹5K	Fake GST (vendor not registered, can’t charge GST)	❌ Don’t claim ITC (not in 2B, vendor illegal) → Ask for refund OR pay only base amount next time

Penalty for Over-Claiming ITC (Without GSTR-2B Support):

Example:

You claim: ₹10L ITC (in Jan GSTR-3B)
GSTR-2B shows: ₹7L ITC
Excess claim: ₹3L

Dept’s notice:

“Reverse ₹3L ITC + pay interest @18% + penalty ₹30K-3L (10-100% of ₹3L)”

How to avoid:

✅ Claim only what’s in GSTR-2B (+ RCM)
⚠️ If urgent (vendor will file late, but you need ITC now) → Claim provisionally → Reverse if vendor doesn’t file within 2 months → Reclaim once vendor files

8. Export Refund Process for IT/SaaS (₹5L-30L Stuck for 12-24 Months)

When to Apply for Refund:

Scenario A: Pure exporter (100% foreign customers, 0% domestic)

Input GST paid: ₹10L (AWS, marketing, tools)
Output GST collected: ₹0 (all exports, 0% GST with LUT)
Accumulated ITC: ₹10L (eligible for refund)

Scenario B: Mixed (60% export, 40% domestic)

Input GST paid: ₹10L
Output GST collected: ₹7.2L (domestic 40% × ₹2Cr revenue @ 18%)
ITC adjustment: ₹7.2L (used to offset domestic GST liability)
Excess ITC: ₹2.8L (eligible for refund—export portion)

Refund Application (Step-by-Step):

Step 1: Calculate refund amount

Formula: (Export turnover / Total turnover) × Net ITC
Example:
- Export: ₹1.2Cr (60%)
- Domestic: ₹80L (40%)
- Total: ₹2Cr
- Net ITC: ₹10L (inputs)
- Refund: (₹1.2Cr / ₹2Cr) × ₹10L = ₹6 lakhs

Step 2: File RFD-01 (Refund application)

GST Portal → Services → Refunds → Application for Refund
Select: Refund of accumulated ITC on account of exports
Upload documents (see below)

Step 3: Required documents

Export invoices (0% GST invoices to foreign customers—PDF)
BRC/FIRC (Bank Realization Certificate / Foreign Inward Remittance Certificate—proof that forex received)
- Download from: Bank’s trade portal (ICICI, HDFC, Axis—login → Export → BRC download)
- One BRC per invoice (or consolidated monthly—depends on bank)
LUT acknowledgment (ARN copy from GST portal)
GSTR-1 (Table 6A showing exports—system auto-fetches)
GSTR-3B (showing ITC claimed—auto-fetches)
CA certificate (if refund >₹2L—some states require, optional for <₹2L)
Undertaking (that refund claimed is correct, no fake exports)

Step 4: Submit

ARN generated (Application Reference Number—e.g., RF2901250XXXXX)
Dept processes (30-60 days if complete docs, 90-180 days if queries)

Step 5: Deficiency memo (if docs incomplete)

Dept issues query (upload missing docs within 15 days)
Rahul’s case: Forgot BRC → 3 months delay to get from bank → Total 18 months

Step 6: Sanction

Refund credited to bank account (NEFT—directly, or to Electronic Cash Ledger first, then you withdraw)

Common Refund Rejection Reasons:

Rejection Reason	Fix
No BRC/FIRC	Download from bank (₹500/certificate) → Upload
LUT not filed	File LUT first → Then apply refund
Exports shown in GSTR-1 Table 6B (with payment), should be 6A (without payment if LUT)	Revise GSTR-1 (if within amendment period) OR submit explanation
Mismatch: Export invoice ₹10L, but BRC shows ₹9.5L	Exchange rate difference (invoice in USD, BRC in INR—normal) → Submit exchange rate calculation
ITC claimed > eligible (common input for domestic + export, but 100% ITC claimed for export)	Revise calculation (proportionate ITC only) → Resubmit

Timeline Benchmarks:

Refund Amount	Typical Processing Time	Rahul’s Experience (with mistakes)
<₹2 lakhs	30-45 days	60 days
₹2L-10L	60-90 days	18 months (missing BRC, wrong classification)
>₹10L	90-180 days	24 months (complex, audit involved)

9. Common GST Mistakes IT & SaaS Startups Make (Top 10)

❌ Mistake 1: Not Filing LUT—Charging 18% GST to Foreign Customers

Wrong: Invoice US customer with 18% GST (thinking “we’re in India, must charge GST”)
Correct: File LUT → Invoice with 0% GST
Impact: Lost competitiveness (18% higher pricing than competitors), customer churn, ₹28L unnecessary GST paid (Rahul’s case)

❌ Mistake 2: Ignoring RCM on Foreign Vendors (AWS, Google, Meta)

Wrong: Pay AWS ₹18L/year, don’t pay RCM
Correct: Monthly RCM payment (18% of AWS bill) + claim ITC (tax neutral)
Impact: ₹3.24L RCM demand + ₹1.16L interest + ₹32K penalty = ₹4.72L (for ₹18L AWS spend over 2 years)

❌ Mistake 3: Not Reconciling GSTR-2B Monthly

Wrong: Claim ₹10L ITC (in GSTR-3B), but GSTR-2B shows ₹7L (vendors didn’t file)
Correct: Claim only GSTR-2B amount (₹7L) + follow up with vendors for remaining ₹3L
Impact: ₹3L ITC disallowed + 18% interest + ₹30K-3L penalty

❌ Mistake 4: Wrong HSN/SAC Code (9983 vs. 9973)

Wrong: SaaS subscription invoiced with HSN 9983 (IT software services—implies development)
Correct: Use HSN 9973 (leasing/licensing—clearer for SaaS subscriptions)
Impact: Export refund delayed/rejected (dept confused about service type), 3-6 months processing delay

❌ Mistake 5: Missing BRC/FIRC for Export Refund

Wrong: Apply for refund without BRC (thinking “bank transfer proof enough”)
Correct: Download BRC from bank (₹500/certificate) before applying
Impact: Refund application deficient → 3-12 months delay (Rahul: 18 months)

❌ Mistake 6: Not Issuing Credit Notes for Cancellations/Refunds

Wrong: Customer cancels (mid-month), refund ₹5.9K, but don’t issue credit note
Correct: Issue credit note → Report in GSTR-1 (Table 9B) → Reduce GST liability
Impact: Overpaid GST (₹900 in example—scales to ₹50K-5L annually for SaaS with 10-20% churn)

❌ Mistake 7: Claiming ITC on Personal Expenses (Food, Travel)

Wrong: Claimed ₹2L ITC (team dinners, personal Uber rides, gym membership)
Correct: Claim ITC only on business expenses (office rent, laptops, software—not food/personal)
Impact: ₹2L ITC disallowed + ₹36K interest + ₹20K-2L penalty

❌ Mistake 8: Not Renewing LUT Annually

Wrong: Filed LUT in FY 2023-24, forgot to renew for FY 2024-25 (April 2024 onwards)
Correct: Renew LUT every April (5 minutes online)
Impact: Exports in April-Dec 2024 without valid LUT → Dept may demand 18% IGST (₹10L-50L if high export volume) → Can apply retrospectively, but risk of penalty

❌ Mistake 9: Over-Claiming Refund (100% ITC for Export, But Also Domestic Sales)

Wrong: ₹10L ITC claimed as refund, but 40% revenue is domestic (should claim only 60% × ₹10L = ₹6L)
Correct: Proportionate refund (export % × total ITC)
Impact: ₹4L excess refund sanctioned (initially), then reversed after audit → Pay back ₹4L + 18% interest + penalty

❌ Mistake 10: Manual Invoice Errors (Wrong GSTIN, Amount, HSN)

Wrong: Typed customer GSTIN wrong (29AAAAA1234 instead of 29AAAAA1235), invoice ₹10K shown as ₹1L in GSTR-1
Correct: Use automated invoicing (Zoho, QuickBooks—auto-fetches GSTIN, validates)
Impact: GSTR-1 mismatch → Customer’s GSTR-2B doesn’t show → Customer can’t claim ITC → Dispute → Professional relationship damage

10. Monthly/Quarterly/Annual GST Compliance Checklist for IT/SaaS

☑️ Monthly (By 11th & 20th):

By 11th:

✅ File GSTR-1 (all invoices—domestic + export)
- Table 4A/4B: Domestic B2B invoices
- Table 6A: Exports (with LUT—0% GST)
- Table 9B: Credit notes (refunds, cancellations)

By 14th:

✅ Download GSTR-2B (ITC statement)
✅ Reconcile with purchase register (match vendor invoices with GSTR-2B)
✅ Follow up with vendors (if invoices missing from GSTR-2B)

By 20th:

✅ Pay RCM (foreign vendors—AWS, Google, Meta, etc.)
✅ File GSTR-3B
- Table 3.1: Outward supplies (domestic ₹X, export ₹Y)
- Table 3.1(d): RCM inward supplies (₹Z)
- Table 4A: ITC claimed (GSTR-2B amount + RCM)
✅ Pay GST (if liability > ITC—netbanking/UPI)

Ongoing (Throughout Month):

✅ Issue invoices (within 7 days of payment received—SaaS subscriptions, development milestones)
✅ Update income/expense ledger (Zoho Books, QuickBooks—or Google Sheets)
✅ Track foreign payments (USD received—note exchange rate, prepare for BRC download)

☑️ Quarterly:

By Quarter-End (March, June, Sept, Dec):

✅ Review place of supply (any new customers abroad? Ensure LUT covers them)
✅ Check turnover (crossed ₹5Cr? E-invoice mandatory—activate IRP integration)
✅ ITC ledger review (accumulated ITC vs. output GST—refund needed?)
✅ Refund application (if export-heavy, apply for ITC refund quarterly—don’t wait year-end)

☑️ Annually:

By April 30 (Every Year):

✅ Renew LUT (FY 2025-26—file by April 30, 2025)

By December 31 (FY-End):

✅ Annual return GSTR-9 (if turnover >₹2Cr—due 31-Dec of next FY)
✅ Reconciliation statement GSTR-9C (if turnover >₹5Cr—CA-certified, due 31-Dec)

By March 31 (Before FY Closes):

✅ ITC ledger cleanup (reversal of ineligible ITC—personal expenses, blocked credits)
✅ Final refund application (if not claimed quarterly—annual consolidated refund for exports)
✅ Books audit (if turnover >₹2Cr—optional for GST, but good practice)

11. When to Hire GST Specialist vs. DIY (Decision Framework)

Annual Revenue	Team Size	GST Complexity	Recommendation	Cost	DIY Feasible?
<₹20 lakhs	Solo / 1-2	Unregistered (below threshold)	DIY (no GST needed yet)	₹0	✅ Yes
₹20L-₹50L	2-5	Domestic only, no exports	DIY OR basic CA (₹5K-10K/year—annual filing)	₹5K-10K/year	✅ Yes (with Zoho Books + YouTube tutorials)
₹50L-₹1Cr	5-15	Domestic + some exports (<30% revenue)	CA specialist (₹15K-30K/year—monthly filing + LUT + basic refund)	₹15K-30K/year	⚠️ Risky (LUT, RCM complexity—hire CA)
₹1Cr-₹5Cr	15-50	Export-heavy (>50% revenue) OR high RCM (₹10L+ foreign vendors)	GST specialist firm (₹50K-1.5L/year—full compliance + refunds + RCM + audit support)	₹50K-1.5L/year	❌ No (too complex, penalty risk high)
>₹5Cr	50+	E-invoice, high volume, multiple products/services	In-house GST team + external consultant (₹2L-5L/year total)	₹2L-5L/year	❌ No (regulatory risk, audit exposure)

Red Flags to Hire Immediately (Even if <₹50L Revenue):

⚠️ Received GST notice (demand, scrutiny, audit)—hire within 48 hours
⚠️ Export revenue >30% (LUT, BRC, refund complexity)
⚠️ Foreign vendor spend >₹5L/year (RCM non-compliance = guaranteed notice)
⚠️ Missed GSTR-3B for 2+ months (late fees ₹200/day = ₹12K/month—hire to fix backlog)
⚠️ GSTR-2B mismatch >₹1L (vendors not filing—need expert follow-up)

12. Real Case Studies (Good vs. Bad GST Compliance)

Case Study A: EdTech SaaS Startup (Good Compliance) ✅

Profile:

Product: Online learning platform (B2C SaaS)
Revenue: ₹3.5 crores/year (85% India, 15% US/UK)
Team: 12 (founders + developers + marketing)
Foreign vendors: AWS (₹25L/year), Google Workspace (₹4L/year), Meta Ads (₹15L/year)

What they did right:

✅ LUT filed (Year 1, Month 1)—Even though export only 15%, filed LUT proactively for future scaling

✅ Monthly RCM compliance—Set up Zoho Books automation (flags foreign vendor invoices → calculates 18% RCM → reminds to pay by 20th)

RCM paid: ₹7.92L/year (₹25L + ₹4L + ₹15L = ₹44L × 18%)
ITC claimed: ₹7.92L (same month—tax neutral)

✅ GSTR-2B reconciliation (14th of every month)—Finance team downloads 2B → Matches with purchase register → Follows up with 3 key vendors (coworking space, contractor, CA) if missing

✅ Quarterly refund application—Export revenue ₹52.5L (15% × ₹3.5Cr) → Accumulated ITC ₹8L (inputs) → Proportionate refund: (₹52.5L / ₹3.5Cr) × ₹8L = ₹1.2L/quarter

Applied quarterly → Received in 45-60 days (clean docs—BRC downloaded monthly from HDFC)

✅ E-invoice activated—Crossed ₹5Cr threshold in Year 2 → Integrated Zoho Books with IRP (auto-generates IRN for 200+ monthly invoices)

✅ Separate GST bank account—All GST payments (RCM, GSTR-3B) via dedicated account → Easier reconciliation

Result:

✅ Zero notices (3 years running)
✅ ₹4.8L refund received (₹1.2L × 4 quarters over Year 2)—Used for hiring 2 developers
✅ Clean audit (investor due diligence—Series A ₹10Cr raised, GST compliance praised)
✅ Scaled to ₹12Cr revenue (Year 3)—No compliance issues, ready for IPO-grade systems

Case Study B: SaaS Startup (Bad Compliance—Lost ₹52L) ❌

Profile: Rahul (from introduction)—same as detailed earlier

What went wrong: ❌ No LUT (Year 1-2) → Charged 18% GST to US customers → Lost ₹28L competitive edge + 12 customers churned
❌ No RCM (₹45L foreign vendors) → ₹11.82L demand (₹8.1L RCM + ₹2.91L interest + ₹81K penalty)
❌ No GSTR-2B reconciliation → ₹3.2L ITC disallowed (vendors didn’t file) → ₹60.8K penalty
❌ Missing BRC (refund application) → ₹7.2L stuck for 18 months → ₹1.3L opportunity cost
❌ Manual invoicing errors → GSTR-1 mismatches → 3 customer disputes (couldn’t claim ITC) → 2 customers left

Result: ❌ ₹5.72L immediate cash demand
❌ ₹45L revenue loss (customer churn—LTV impact)
❌ 18 months stress (notices, hearings, responses)
❌ ₹1.2L professional fees (CA + lawyer—emergency hiring)
❌ Total damage: ₹52L+ (₹5.72L + ₹45L + ₹1.2L)

Lesson:

“No LUT” cost ₹73L total (₹28L wrong GST + ₹45L churn)
“No RCM” cost ₹11.82L demand
Hiring GST specialist (₹50K/year) would’ve saved ₹51.8L (₹52L – ₹1.2L already spent)

13. Conclusion: IT & SaaS Companies Need Systematic GST Compliance

Key Takeaways:

✅ File LUT immediately (even if export revenue is 10%—future-proof, zero downside)
✅ Pay RCM monthly (AWS, Google, Meta—tax neutral via ITC, but non-payment = ₹5L-20L demand)
✅ Reconcile GSTR-2B every 14th (vendor follow-up critical—₹2L-15L ITC disallowance risk)
✅ Use correct HSN/SAC (9973 for SaaS subscriptions, 9983 for development—refund rejections if wrong)
✅ Download BRC monthly (₹500/certificate, but saves 12-18 months refund delay)
✅ Automate invoicing (Zoho Books / QuickBooks—e-invoice ready, GSTR-1 auto-upload, fewer errors)
✅ Apply for refunds quarterly (don’t wait year-end—₹1L-10L quarterly cash injection for growth)
✅ Separate business bank account (GST payments, RCM, refunds—cleaner accounting)

What Good GST Compliance Gives You:

✅ Competitive pricing (0% GST on exports via LUT—18% cheaper than non-compliant competitors)
✅ Cash flow boost (₹5L-30L annual ITC refunds—use for hiring, marketing, AWS scaling)
✅ Zero notices (proactive = 95% issues avoided)
✅ Investor confidence (Series A/B due diligence—clean GST = faster fundraising)
✅ Customer trust (accurate invoicing, proper GSTIN—B2B customers can claim ITC seamlessly)

What Poor GST Compliance Costs:

❌ Revenue loss (₹20L-50L+ from customer churn—18% higher pricing scares away price-sensitive customers)
❌ Demand notices (₹5L-50L—RCM, ITC mismatch, wrong classification)
❌ Refund delays (₹5L-30L stuck for 12-24 months—missing BRC, wrong docs)
❌ Penalties (₹50K-5L—10-100% of tax, late fees ₹200/day)
❌ Stress (6-18 months responding to notices, compiling docs, hearings)

Final Word for IT & SaaS Founders:

“Code scales infinitely. Compliance doesn’t—but it protects your scale.”

Set up systems NOW:

File LUT (today—5 minutes on GST portal)
Automate RCM (Zoho Books + monthly reminder—₹3K/month subscription saves ₹10L+ demand)
Download BRC (monthly—₹500/month saves 18-month refund delays)
Reconcile GSTR-2B (14th every month—30 minutes, saves ₹2L-15L ITC disallowances)
Apply for refund (quarterly—not annually)

Hire help when needed:

DIY: Revenue <₹50L + domestic-only (use Zoho Books + ClearTax tutorials)
Basic CA: Revenue ₹50L-₹1Cr + some exports (₹15K-30K/year)
GST specialist: Revenue >₹1Cr OR export >50% OR RCM >₹10L (₹50K-1.5L/year—saves ₹5L-50L in penalties + refunds accelerated)

Do this, and you’ll scale fearlessly—GST sorted, refunds flowing, customers happy, investors confident.

Build fast. Comply systematically. Scale infinitely.

FAQs: GST for IT & SaaS Companies (30 Essential Questions)

Q1: Do IT/SaaS companies need GST registration?

A: Yes, if annual turnover ≥₹20 lakhs (₹10 lakhs in special category states).
Turnover includes: Domestic sales + export sales (foreign clients) combined.
Example: ₹8L domestic + ₹13L export = ₹21L → GST mandatory.
Register within 30 days of crossing threshold.

Q2: What HSN/SAC code should SaaS subscriptions use?

A: 9973 (Leasing or rental services—licensed software access).
Use 9983 for custom software development (not recurring subscriptions).
Why it matters: Wrong code = export refund delays (dept confused about service type).

Q3: What is LUT and why is it critical for IT exporters?

A: LUT (Letter of Undertaking) = Declaration to export services without paying GST (0% instead of 18%).
How to file: GST Portal → Services → Furnish LUT → Submit (free, instant approval).
Critical: Without LUT, you charge 18% GST to foreign customers → 18% higher pricing → Lose competitiveness → Customer churn.
Rahul’s mistake: No LUT → Charged ₹28L GST unnecessarily → Lost 12 customers.

Q4: Can I claim ITC on AWS, Google Workspace, Meta Ads bills?

A: Yes (via RCM—Reverse Charge Mechanism).
How:

Pay vendor (AWS, Google—no GST charged by them)
You pay 18% IGST under RCM (directly to govt via DRC-03 challan)
Claim same 18% as ITC (in GSTR-3B Table 4A)—tax neutral

Example: AWS bill ₹10L → RCM ₹1.8L → ITC ₹1.8L → Net ₹0.

Q5: What is RCM and when does it apply to IT startups?

A: RCM (Reverse Charge Mechanism) = You pay GST to govt (instead of vendor charging you).
Applies when: You buy services from foreign vendor (who has no Indian GST registration).
Common triggers: AWS, Google Workspace, Meta Ads, Stripe, Slack, Zoom.
Penalty for non-payment: RCM amount + 18% interest + 10-100% penalty (₹11.82L in Rahul’s case for ₹45L foreign spend).

Q6: How to calculate RCM for foreign vendors?

Convert invoice to INR (use exchange rate on payment date)
Calculate 18% IGST (on INR amount)
Pay via DRC-03 (GST Portal → Create Challan → IGST (RCM))
Claim ITC (same month in GSTR-3B Table 4A)

Example: Meta Ads $5,000 (₹4.15L @ ₹83/$ 5,000(₹4.15L@₹83/) → RCM ₹74,700 → Pay + claim ITC = ₹0 net.

Q7: What is GSTR-2B and why should I check it monthly?

A: GSTR-2B = Auto-generated statement showing ITC available to you (based on vendors’ GSTR-1 filings).
Generated: 14th of every month.
Why check: If vendor didn’t file GSTR-1 → Invoice not in GSTR-2B → You claim ITC anyway → Mismatch → Notice + penalty.
Best practice: Download GSTR-2B (14th) → Match with purchases → Follow up with vendors (if missing) → Claim only what’s in GSTR-2B + RCM.

Q8: Can I export SaaS services with 0% GST?

A: Yes (if conditions met):

Recipient outside India (US, UK customer—yes)
Service consumed outside India (SaaS used by foreign team—yes)
Payment in forex (USD via Stripe—yes)
File LUT (annual, free, online)

Then: Invoice with 0% GST, receive payment, file GSTR-1 (Table 6A—exports).

Q9: What is BRC/FIRC and why is it needed for GST refund?

A: BRC (Bank Realization Certificate) / FIRC (Foreign Inward Remittance Certificate) = Proof that foreign exchange received.
Issued by: Your bank (ICICI, HDFC, Axis—download from trade portal).
Cost: ₹500/certificate (approx).
Needed for: Export refund application (without BRC, refund rejected—Rahul’s 18-month delay).
Download: Monthly (after forex received—Stripe payout, PayPal transfer).

Q10: How long does GST export refund take?

With complete docs (BRC, LUT, GSTR-1, invoices): 30-60 days
With missing docs / queries: 90-180 days (or 12-24 months if major issues—Rahul’s case)

Tip: Apply quarterly (not annually) → Faster processing, better cash flow.

Q11: Can I claim refund if I have both domestic and export sales?

A: Yes (proportionate refund).
Formula: (Export turnover / Total turnover) × Net ITC
Example:

Export: ₹1.2Cr (60%)
Domestic: ₹80L (40%)
Net ITC: ₹10L
Refund: (₹1.2Cr / ₹2Cr) × ₹10L = ₹6 lakhs

Q12: What if I forgot to file LUT for 2 years—can I file now?

A: Yes (file immediately—better late than never).
Effect: LUT valid from filing date onwards (not retrospective).
Past exports (without LUT):

If you charged 18% GST → Dept may allow (treat as domestic supply)
If you charged 0% GST (without LUT) → Risky (could demand 18% IGST + penalty)

Best: File LUT now + revise future invoices to 0% GST.

Q13: How to handle SaaS subscription cancellations in GST?

Issue Credit Note (for refunded amount—base + GST)
Report in GSTR-1 (Table 9B—Credit/Debit Notes)
Reduce GST liability (in month of credit note issuance)

Example: Refund ₹5,900 (₹5K base + ₹900 GST) → Credit note → GSTR-3B liability reduces by ₹900.

Q14: When is e-invoice mandatory for IT/SaaS companies?

A: If annual turnover >₹5 crores (from 1-Aug-2023).
How: Integrate invoicing software (Zoho Books, QuickBooks) with IRP (Invoice Registration Portal) → Auto-generates IRN + QR code for each invoice.
Penalty for non-compliance: ₹10,000 (per invoice—if turnover >₹5Cr and e-invoice not generated).

Q15: Can I claim ITC on office rent, laptops, internet?

A: Yes (all business expenses).
Allowed:

Office rent (commercial—coworking, dedicated office)
Laptops, desktops (via ITC + depreciation in income tax)
Internet, broadband (if business use)
SaaS tools (CRM, project management)

Not allowed:

Residential rent (if working from home—GST on rent not charged by landlord usually, so no ITC)
Food, beverages (Section 17(5)(b)(i)—blocked)

Q16: What is the difference between Table 6A and 6B in GSTR-1?

Table 6A: Exports without payment of IGST (LUT used—0% GST invoices)
Table 6B: Exports with payment of IGST (18% IGST paid, claiming refund later)

99% IT/SaaS companies: Use Table 6A (LUT option—better cash flow).

Q17: What if my vendor (contractor, coworking space) didn’t file GSTR-1—can I still claim ITC?

A: Risky.
Rule: ITC allowed only if vendor filed GSTR-1 (appears in your GSTR-2B).
Best practice:

Check GSTR-2B (14th of month)
If vendor missing → Follow up (WhatsApp/email—”Please file GSTR-1″)
Claim ITC only after vendor files (might be next month—delayed, but safe)

Penalty for claiming without vendor filing: ITC disallowed + interest + penalty (₹60.8K in Rahul’s ₹3.2L mismatch case).

Q18: How to handle multi-currency invoicing (USD, EUR) for GST?

Invoice in foreign currency (USD $1,000—customer pays this)
Convert to INR for GSTR-1 (use exchange rate on date of invoice OR date of payment—use SBI reference rate)
Report in GSTR-1 (Table 6A—INR equivalent)

Example: Invoice $1,000 (₹83,000 @ ₹83/$ 1,000(₹83,000@₹83/) → GSTR-1 shows ₹83,000 (export, 0% GST with LUT).

Q19: Can I claim GST refund on accumulated ITC if I’m a pure exporter (100% foreign customers)?

A: Yes (full ITC refund—since output GST is ₹0 with LUT, all input ITC is refundable).
Example:

Input ITC: ₹10L (AWS, marketing, tools)
Output GST: ₹0 (all exports, 0% GST)
Refund: ₹10L (100% of ITC)

Apply: Quarterly (₹2.5L per quarter—better cash flow than annual ₹10L).

Q20: What if I charged 18% GST to foreign customers by mistake—can I revise?

A: Yes (issue Credit Note + Debit Note).
Steps:

Credit Note (cancel original invoice with 18% GST)
Debit Note (issue new invoice with 0% GST—LUT basis)
Report in GSTR-1 (Table 9B—credit/debit notes)
Refund customer (18% GST wrongly charged—return to customer OR adjust in next invoice)

Rahul’s case: Revised 24 months of invoices (₹28L GST wrongly charged) → Issued credit notes → Refunded customers → Won back 5 of 12 lost customers.

Q21: How to pay RCM if I have multiple foreign vendors (AWS, Google, Meta, Slack)?

Consolidate monthly (list all foreign invoices—AWS ₹10L, Google ₹5L, Meta ₹8L = ₹23L total)
Calculate total RCM (₹23L × 18% = ₹4.14L)
Pay via single challan (DRC-03—IGST ₹4.14L)
Claim ITC (GSTR-3B Table 4A—₹4.14L)

Automate: Zoho Books / QuickBooks can flag foreign vendors → Calculate RCM → Remind before 20th.

Q22: Can I use personal credit card for AWS bills—will I still get ITC?

A: Yes (ITC allowed even if paid via personal credit card—as long as expense is for business).
But: Better to use business credit card (cleaner segregation for audits).
Proof needed: Credit card statement (showing AWS charge) + invoice from AWS (email).

Q23: What is the penalty for late GSTR-3B filing?

A: ₹50/day (₹25 CGST + ₹25 SGST) if NIL return, ₹200/day (₹100 CGST + ₹100 SGST) if tax payable.
Example: 2 months late (60 days) → ₹200 × 60 = ₹12,000 late fee.
Plus: Interest @18% p.a. on unpaid tax (if GST liability not paid on time).

Q24: Can I claim ITC on marketing expenses (Meta Ads, Google Ads)?

A: Yes (if billed by Indian entity with GST).
Meta Ads / Google Ads:

Billed by: Meta Platforms Ireland / Google Ireland (foreign) → No GST charged → Pay RCM (18%) + claim ITC
Or: Sometimes billed via Indian reseller (with GST) → Direct ITC claim (no RCM)

Check invoice: If GSTIN present (Indian entity) → Direct ITC; If no GSTIN (foreign) → RCM route.

Q25: How to handle advance payments in SaaS billing (GST)?

A: GST due when payment received (even if service not yet delivered).
Example:

Customer pays: ₹1,00,000 (advance for annual subscription—service Jan 2025 – Dec 2025)
Received: 1-Dec-2024
GST due: Dec 2024 GSTR-3B (₹18K GST payable—even though service starts Jan 2025)

Tip: Issue invoice when payment received (mentions “Advance for annual subscription Jan-Dec 2025”).

Q26: What if I provide both software development (custom) and SaaS subscription—single invoice or split?

A: Recommended: Split invoices (clearer classification).
Invoice 1 (Custom Dev):

Service: Custom API development
SAC: 9983
Amount: ₹5,00,000 + ₹90,000 GST = ₹5,90,000

Invoice 2 (SaaS):

Service: Monthly SaaS subscription
SAC: 9973
Amount: ₹10,000/month + ₹1,800 GST = ₹11,800

Why: Export refund easier (9973 clearly recurring, 9983 one-time—separate treatment).

Q27: Can I claim refund if my output GST (domestic) is more than ITC (inputs)?

A: No (refund only if ITC > output GST—i.e., excess ITC accumulated).
Scenario:

ITC: ₹5L
Output GST: ₹8L
Net payment: ₹3L (to govt—no refund, you pay ₹3L)

Refund scenario: ITC ₹10L, output GST ₹6L → Excess ITC ₹4L (refundable if due to exports).

Q28: When should I upgrade from freelancer/proprietor to Pvt Ltd for GST?

Revenue	Recommendation	Why
<₹1 Cr	Proprietor OK	Simple, lower compliance
₹1Cr-₹5Cr	Proprietor OR LLP (if 2+ partners)	LLP if scaling team, Pvt Ltd if raising funding
>₹5Cr	Pvt Ltd	Investor preference, credibility with large customers, e-invoice compliance easier

GST impact: No difference in GST rates/rules (Proprietor vs. Pvt Ltd—both 18%)—but Pvt Ltd = better audit trail, easier for investors.

Q29: What are common GST audit triggers for IT/SaaS companies?

High ITC claims (₹10L+ annually—dept checks if genuine business expenses)
Export without BRC (claimed 0% GST but no forex receipt proof)
RCM non-payment (foreign vendors >₹5L/year, no RCM in GSTR-3B)
GSTR-2B mismatch (₹2L+ excess ITC claimed vs. GSTR-2B)
Frequent credit notes (₹5L+ annually—dept suspects fake invoicing to reduce GST)

How to avoid: Proper documentation (BRC, RCM payment, GSTR-2B reconciliation, genuine credit notes with customer proof).

Contact AdvoFin Consulting to ensure your IT/SaaS business is GST-compliant, refunds flowing, and penalty-free—from first export to Series B funding.

Disclaimer: This blog is for educational purposes only and does not constitute legal or tax advice. GST laws for IT & SaaS companies are subject to frequent amendments, notifications, and interpretative changes. Export of services classification, LUT eligibility, RCM applicability, place of supply determination, and ITC claims depend on individual business models, customer contracts, service delivery mechanisms, and transaction structures. Every IT/SaaS company’s situation is unique—revenue mix (domestic vs. export), vendor composition (foreign vs. Indian), and technology stack vary significantly. Please consult a qualified Chartered Accountant or GST practitioner for personalized guidance on your specific IT/SaaS operations and compliance requirements. AdvoFin Consulting is not liable for actions taken based solely on this content. Claude is AI and can make mistakes. Please double-check responses.