A payment to a foreign service provider is not automatically an import of services for Indian GST. The transaction qualifies only when the supplier is outside India, the recipient is in India, and the place of supply is in India. For a qualifying import covered by the applicable notification, an Indian registered recipient generally pays IGST under reverse charge. A supplier-side (forward-charge) route applies only where a specific rule—most notably the OIDAR rule for a non-taxable online recipient—assigns liability to the foreign supplier.
The short answer: who pays GST?
India’s Integrated Goods and Services Tax (IGST) framework uses two separate questions:
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- Is the service an import? All three statutory conditions must be satisfied: the supplier is located outside India, the recipient is located in India, and the place of supply is in India.
- Who accounts for the tax? For a qualifying imported service covered by the relevant reverse-charge notification, the Indian recipient pays IGST. In a limited supplier-side route, such as online information and database access or retrieval (OIDAR) supplied to a non-taxable online recipient, the foreign supplier accounts for the tax under section 14.
“Forward charge” is therefore a description of who has the liability in a particular statutory route, not a free choice that the parties can make on an invoice. Before deciding, classify the actual service, determine its place of supply under section 13 (or a special provision), check the recipient’s GST status, and then verify the current notification, rate and filing rules for the relevant tax period.
What counts as an import of services?
Section 2(11) of the Integrated Goods and Services Tax Act, 2017 defines import of services as follows:
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“‘import of services’ means the supply of any service, where–– (i) the supplier of service is located outside India; (ii) the recipient of service is located in India; and (iii) the place of supply of service is in India;”
These are cumulative limbs. If even one fails, the transaction does not meet the statutory definition of an import of services. Imported services are treated as inter-State supplies, but that classification does not eliminate the need to test place of supply or the applicable liability mechanism.
1. Supplier outside India
Identify the supplier’s legal location and the establishment that actually makes the supply. A foreign parent, platform or contractor may invoice an Indian business, but the contract and performance facts should establish which entity is the supplier. An overseas payment processor or bank does not, by itself, determine the supplier’s location for the underlying service.
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2. Recipient in India
Determine which person or entity receives the service and where that recipient is located. For a business, examine the contracting entity, GST registration and the establishment that uses or receives the service. A payment made from an Indian bank account is not a substitute for identifying the legal recipient.
3. Place of supply in India
Place of supply is a statutory result, not simply the address printed on an invoice. Section 13 generally uses the recipient’s location for services supplied across borders, but it contains exceptions for specified categories. Those exceptions can put the place of supply outside India even when the supplier is foreign and the customer has an Indian address.
Reverse charge and forward charge compared
| Issue | Reverse charge for a qualifying imported service | Supplier-side or forward-charge route |
|---|---|---|
| Who accounts for IGST? | Ordinarily the Indian registered recipient, when the import meets the three-limb test and the applicable reverse-charge notification covers the service. | The foreign supplier, but only where a specific statutory route assigns liability to it. The clearest example in this context is OIDAR supplied to a non-taxable online recipient under section 14. |
| What is the threshold question? | Does the supply satisfy all three import conditions, and is it within the notified reverse-charge category? | Does a special rule, such as the OIDAR recipient-status rule, make the supplier responsible? |
| Role of place of supply | The place of supply must be in India for the service to be an import. | OIDAR has special section 14 treatment; the ordinary section 13 rule cannot be applied mechanically. |
| Input-tax credit | Tax paid under reverse charge can be input tax if the recipient meets the normal eligibility and documentation conditions. Payment alone does not guarantee usable credit. | The recipient’s credit position follows the ordinary credit rules applicable to the transaction and the documents available; supplier payment does not automatically create credit for the customer. |
| Can parties choose? | No. Reverse charge follows the statute and notification. | No. A supplier cannot simply label an invoice “forward charge” to override a notified recipient liability. |
This comparison is a practical framework, not a complete list of every notified service, rate or compliance obligation. Confirm the exact notification and tax period before booking or paying tax.
Why place of supply changes the result
Section 13’s general cross-border rule commonly points to the recipient’s location. However, the section has category-specific exceptions. The service must be described accurately before the rule is selected.
Intermediary services
The text of section 13 gives intermediary services supplier-location treatment. If an overseas supplier is acting as an intermediary and the applicable exception places the service outside India, the third import limb fails. A foreign invoice to an Indian customer therefore does not, by itself, make the service an import subject to reverse charge.
Services connected with goods, people, property or events
Other exceptions cover services tied to the movement or location of goods, services supplied to individuals in particular circumstances, services connected with immovable property, and admission or organisation of events. The relevant statutory category can move the place of supply away from the recipient’s Indian location. For example, a service physically performed on property or at an event may need a different analysis from remote advisory work, even when the same foreign company supplies both.
Establishments and actual use
Where a recipient has more than one establishment, identify the establishment most directly concerned with receiving the service. Contractual wording, purchase orders, statements of work, user access, delivery location and internal allocation records can all help establish the facts. Do not infer place of supply solely from the currency, card, bank account or billing address.
OIDAR: the important supplier-side exception
Online information and database access or retrieval services (OIDAR) have a special rule. CBIC’s explanatory material distinguishes a non-taxable online recipient—generally an unregistered individual or entity not liable to be registered—from a registered Indian business.
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OIDAR supplied to a non-taxable online recipient
For this case, section 14 places the compliance obligation on the non-resident supplier. The supplier uses the supplier-side mechanism for the tax, rather than expecting the individual recipient to pay IGST under the ordinary imported-service reverse-charge summary. This is a recipient-status distinction, not a rule for every foreign digital service.
OIDAR supplied to a registered Indian recipient
Do not carry the non-taxable-recipient exception into a business purchase merely because the product is digital. If the Indian customer is registered and the three import conditions are met, examine the applicable reverse-charge notification and ordinary section 13 rules. A software subscription, cloud access, hosted database or similar product must be classified by its actual characteristics and customer status.
How to document the status
- Record the recipient’s legal name, address and GSTIN where applicable.
- Keep evidence of whether the customer is registered or is a non-taxable online recipient.
- Retain the subscription order, terms of service, invoice, access records and payment trail.
- Check whether the service is genuinely OIDAR rather than ordinary professional, advertising, implementation or support work delivered online.
Does paying in foreign currency—or rupees—decide GST?
No. CBIC’s imported-software FAQ states: “The factum of which currency was used to pay the consideration is immaterial.” The qualification is important: the FAQ reaches that conclusion only after the foreign supplier, Indian recipient and Indian place-of-supply conditions are met. Paying in Indian rupees does not prevent an import; paying in dollars, euros or another currency does not prove one.
Use currency as an accounting and foreign-exchange fact, not as the GST classification test. The same approach applies to payment through a card, online wallet, Indian subsidiary or group treasury centre: trace the actual supplier, recipient and service.
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- Collect the transaction documents. Obtain the contract, purchase order, statement of work, invoice, renewal terms, user or delivery details, payment records and any GST registration information.
- Describe what was actually supplied. Distinguish software access, consulting, advertising, brokerage, implementation, support, training, event admission, property-related work and other categories. Labels such as “subscription” or “management fee” are not enough.
- Identify the supplier. Confirm the legal entity outside India that is contractually responsible and performs or arranges the service. Separate a supplier from a payment intermediary.
- Identify the recipient and status. Determine the Indian legal recipient, its establishment receiving the service, its GST registration and whether it is a non-taxable online recipient for OIDAR purposes.
- Apply section 13 and any special rule. Start with the general recipient-location rule, then test every relevant exception, including intermediary, goods, individual, immovable-property and event provisions. For OIDAR, consider section 14.
- Decide whether all three import limbs are met. If the place of supply is outside India, the transaction is not an import of services under section 2(11), even though the supplier is foreign.
- Check the reverse-charge notification. Section 5(3) authorises the Government, on the GST Council’s recommendations, to notify categories for recipient-paid reverse charge. Verify the notification in force for the relevant date and the service description it covers.
- Determine the rate. Use the rate notification applicable to the classified service and tax period. Do not assume that the rate for a similar domestic service or an earlier invoice remains current.
- Separate payment, reporting and credit. Establish when and how IGST must be paid, how the transaction is reported in the currently prescribed return or record, and whether input-tax credit is eligible after applying restrictions and documentation requirements.
- Keep an audit trail. Save the classification memo, notification, contract, invoice, proof of recipient status, calculation and payment evidence. Revisit the conclusion when the service, entity, contract or law changes.
How reverse-charge compliance differs from ordinary supplier invoicing
Under reverse charge, the Indian recipient—not the foreign supplier—must account for the tax where the notified route applies. The supplier’s invoice may show no Indian GST, but the absence of GST on the invoice is not proof that no tax is due. The recipient should calculate the taxable value under the applicable valuation rules, apply the correct rate, pay within the current statutory timeline and report it through the prescribed mechanism.
Do not turn this into a mechanical “foreign invoice equals self-invoice” rule. Documentation and reporting requirements can depend on the transaction and the rules in force. Confirm the current forms, payment challan process, return fields and timing for the relevant tax period rather than relying on an old checklist.
Input-tax credit: payment is not the same as recovery
IGST paid under reverse charge may be input tax, but credit is subject to the general eligibility conditions and restrictions. Consider whether the recipient is registered, whether the service is used or intended for business, whether required records and tax payment evidence are available, and whether a specific blocked-credit rule applies.
- First question: was tax correctly payable? An incorrectly paid amount can create correction and credit problems.
- Second question: was it paid and reported correctly? Retain proof of payment and the prescribed reporting record.
- Third question: is credit legally eligible? Business use does not override blocked-credit provisions or other statutory conditions.
- Fourth question: does timing matter? Apply the time limits and return-period rules that are current when the credit is claimed.
For a supplier-side OIDAR transaction, the foreign supplier’s tax payment does not automatically give the Indian customer an input-tax credit. The customer must separately satisfy ordinary credit requirements.
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Foreign software subscription for a GST-registered company
A foreign company supplies hosted software to an Indian registered business. The foreign company is the supplier, the Indian business is the recipient, and the service is used by that Indian business. If section 13 places the service in India and no exception applies, the three import limbs are met. The business then checks whether the applicable reverse-charge notification covers the service, pays IGST if it does, reports it under the current procedure and evaluates credit separately.
Foreign consultant whose work is an intermediary service
An overseas firm arranges supplies between an Indian company and third parties and is acting as an intermediary rather than providing its own principal service. If the section 13 intermediary exception places the service at the supplier’s location, the place of supply is outside India. The payment is not an import of services under section 2(11), so the ordinary imported-service reverse-charge conclusion does not follow.
Digital service sold to an individual in India
A foreign provider supplies an OIDAR service directly to an individual who is a non-taxable online recipient. Section 14’s supplier-side mechanism is the relevant route. The provider’s obligation is not the same as a registered Indian business’s reverse-charge obligation.
Foreign event admission in India
A foreign organiser sells admission to an event held in India. Because event-related services have specific place-of-supply rules, test that provision rather than applying the general recipient-location rule automatically. The result may differ from remote consulting purchased by the same customer.
Property-related service outside India
An Indian company engages a foreign architect or facilities specialist for work directly connected with immovable property outside India. The property-related place-of-supply exception may place the service outside India. Confirm the exact statutory category and facts before deciding that reverse charge applies.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Common mistakes and how to correct them
“Every foreign payment is an import”
Why it fails: It ignores the place-of-supply limb and its exceptions.
Correction: Classify the service and apply section 13 (or section 14 for OIDAR) before discussing tax.
“The invoice is in rupees, so GST does not apply”
Why it fails: Currency is immaterial to the import test.
Correction: Document supplier location, recipient location and place of supply.
“The customer can choose forward charge”
Why it fails: Liability follows the statute and notification.
Correction: Identify the notified reverse-charge category or the specific supplier-side exception.
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“All online services are OIDAR”
Why it fails: A service delivered online may still be consulting, implementation, advertising, support or another category.
Correction: Analyse the service’s substance and then verify the recipient-status rule.
“Paying reverse charge automatically creates credit”
Why it fails: Credit has separate eligibility, restriction, documentation and timing requirements.
Correction: Test credit only after confirming liability and compliant payment and reporting.
“An old section 5(4) summary is still current”
Why it fails: The earlier blanket wording concerning supplies from unregistered suppliers was replaced with effect from 1 February 2019. Current section 5(4) cannot be described using that superseded summary.
“A CBIC FAQ settles every future transaction”
Why it fails: FAQs illustrate the law and can lag amendments; they do not replace the Act, notifications or current procedural rules.
Correction: Use the illustration for orientation, then verify the law and facts for the relevant date.
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What section 5(3) and section 5(4) mean for the analysis
Section 5(3) authorises the Government, on the GST Council’s recommendations, to notify categories of inter-State supplies on which the recipient must pay IGST. That authority is why the import analysis does not end with the three-limb definition: the specific notified category and effective date still matter.
The current CBIC tax-information text also records that the earlier blanket wording in section 5(4) concerning supplies from unregistered suppliers was replaced with effect from 1 February 2019. Do not use the superseded rule as a general explanation of present reverse charge. The displayed Act text also notes an amendment whose commencement is “yet to be notified”; check commencement status before relying on any provision affected by that note.
Information to verify before filing or advising
- The supplier entity, recipient entity and establishment actually receiving the service.
- The service description and contract terms, including whether the supplier is principal or intermediary.
- The section 13 exception, if any, and the resulting place of supply.
- Whether the recipient is GST-registered or is a non-taxable online recipient for an OIDAR supply.
- The reverse-charge notification and rate effective on the supply date.
- Current payment, return-reporting and record-keeping instructions.
- Input-tax-credit eligibility, blocked credits, documentary evidence and time limits.
- Any amendment, commencement notification or clarification issued after the transaction date.
Official explanatory material includes a CBIC imported-software FAQ example in which the currency of payment is immaterial once the three import conditions are met. A CBIC imports explainer dated 2017 is useful background but should not be treated as a current statement of rates, forms or notification coverage. For a material transaction, have the contract and classification reviewed against the law and notifications in force for that period.
Decision tree
- Is the supplier outside India? If no, this is not an imported service.
- Is the recipient in India? If no, this is not an imported service.
- Is the place of supply in India after applying section 13 and its exceptions? If no, this is not an imported service under section 2(11).
- Is the recipient a non-taxable online recipient and is the service OIDAR? If yes, examine the section 14 supplier-side mechanism.
- Otherwise, does a current reverse-charge notification cover the qualifying import? If yes, the Indian registered recipient ordinarily pays IGST and follows current reporting rules.
- Finally, is input-tax credit available? Apply the separate eligibility and restriction rules; never assume the answer from the payment mechanism alone.
Bottom line for businesses and individuals
Start with the three statutory limbs, not the foreign currency, payment channel or invoice label. A foreign supplier plus an Indian customer becomes an import only when the place of supply is also in India. For a qualifying, notified import, an Indian registered recipient generally accounts for IGST under reverse charge. Supplier-side treatment is a targeted statutory exception, especially for OIDAR supplied to a non-taxable online recipient under section 14. Because place-of-supply exceptions, notifications, rates, commencement dates, filing procedures and credit restrictions can change, make the conclusion transaction-specific and date-specific before paying or claiming anything.
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