IT and Software Exports from India: GST, FEMA, and Service Export Compliance

India's IT Export Landscape: $200B+ and Growing

India's IT and business services exports crossed $200 billion in FY2026, making software the country's single largest export category. Bigger than petroleum, gems, or pharmaceuticals. The sector is dominated by services: IT outsourcing, BPO, engineering services, and cloud consulting account for the bulk of revenue. But product exports are catching up fast. Indian SaaS companies alone are projected to generate $35-40 billion in revenue by 2027, with most of it coming from international customers.

This growth creates a compliance challenge. Unlike a container of textiles that clears customs with a shipping bill, software exports are invisible at the border. There is no physical shipment, no bill of lading, and often no traditional invoice cycle. Yet every dollar earned from an overseas client triggers obligations under GST, FEMA, RBI reporting, and income tax. Getting the compliance wrong does not just mean penalties. It can block your GST refunds , freeze your banking channels, and create transfer pricing disputes that drag on for years.

Is Software Export Goods or Services? Why Classification Matters

The classification of software as goods or services determines your entire compliance pathway. Which tax applies, which forms you file, and how the RBI tracks your export proceeds. Get this wrong and every downstream filing is built on the wrong foundation.

Software as goods: Customised software supplied on a physical medium (a CD, USB drive, or pre-loaded hardware) is classified as goods under Chapter 85 of the Harmonised System (HS code 8523). It requires a shipping bill, customs clearance, and follows the standard goods-export pathway through EDPMS. This classification is increasingly rare but still relevant for embedded software in exported hardware.

Software as services: Everything delivered electronically (custom development, IT consulting, BPO, SaaS subscriptions, cloud infrastructure, data analytics, and AI/ML services) is classified as export of services under both the IGST Act and FEMA . This is how the vast majority of Indian IT exports are treated. No shipping bill is required. Instead, you file a SOFTEX form with STPI or your SEZ authority.

GST Treatment: Zero-Rating, LUT, and ITC Refunds

Software service exports are zero-rated under GST, meaning no GST is charged on the export invoice. But to qualify, your transaction must meet all five conditions under Section 2(6) of the IGST Act for "export of services":

Five conditions for export of services

• The supplier of service is located in India.
• The recipient of service is located outside India.
• The place of supply of service is outside India.
• Payment for the service is received in convertible foreign exchange or Indian rupees (where permitted by RBI).
• The supplier and recipient are not merely establishments of a distinct person (with exceptions for certain services).

Once qualified, you have two options: export under a Letter of Undertaking (LUT) without paying IGST and claim refund of accumulated Input Tax Credit (ITC) via GST RFD-01 , or pay IGST on the export invoice and claim a refund of the IGST paid. The LUT route is overwhelmingly preferred because it avoids locking up working capital in IGST payments.

FEMA Compliance: Purpose Codes and Realisation

Every inward remittance for IT service exports must be tagged with the correct RBI purpose code. For software and IT services, the relevant codes are:

Like goods exports, service exports are subject to the 9-month realisation period under FEMA. You must receive payment within 9 months of the invoice date. Service exports are reported through EDPMS (Export Data Processing and Monitoring System), though the entry is created via SOFTEX rather than a shipping bill. If the EDPMS entry remains open past 9 months, the same consequences apply as for goods: your AD bank reports it, and the RBI flags your account.

SOFTEX Form: RBI's Export Declaration for Software

The SOFTEX (Software Export Declaration Form) is the RBI's equivalent of a shipping bill for software and IT service exports. It is the document through which the RBI tracks that foreign exchange from software exports is actually being received and repatriated.

SOFTEX must be filed when the value of a single software export contract or project exceeds Rs 25 lakh . It is filed quarterly through STPI (Software Technology Parks of India) or through the relevant SEZ authority if you operate from a Special Economic Zone. STPI certifies the SOFTEX and forwards it to the RBI, which creates the corresponding EDPMS entry.

What the SOFTEX form captures

• Client name, country, and contract or purchase order details.
• Nature of software or IT service exported (development, consulting, SaaS, BPO, etc.).
• Invoice-wise details: invoice number, date, currency, and amount.
• Payment terms and expected date of realisation.
• Actual remittance received against the SOFTEX (updated when payment arrives).

STPI Registration: Benefits Beyond Tax Holidays

Software Technology Parks of India (STPI) was set up by the Government of India to promote software exports. While the original income tax exemption under Section 10A expired in 2011 (replaced partially by Section 10AA for SEZ units), STPI registration still offers significant operational benefits for IT exporters.

STPI-registered units can import hardware, networking equipment, and development tools duty-free under a bonded warehouse scheme. This is particularly valuable for companies setting up development centres with significant hardware requirements. The duty-free import applies to capital goods used for software development and export. Servers, workstations, networking gear, and testing equipment.

Beyond duty-free imports, STPI provides the infrastructure for SOFTEX certification. Every STPI centre has a designated officer who reviews and certifies SOFTEX forms, which then get reported to the RBI. For IT companies not located in an SEZ, STPI is the primary channel for software export reporting. STPI also provides high-speed data communication links and incubation facilities at subsidised rates for startups.

Transfer Pricing: The Hidden Compliance Risk for IT Exporters

A large share of Indian IT exports go to related parties. The Indian subsidiary provides development services to its US or European parent company. This triggers transfer pricing obligations under Section 92 of the Income Tax Act. The core principle: the price charged between related parties must be at arm's length , meaning it should be what two independent parties would have charged each other for the same service.

For IT service companies, the most common transfer pricing method is the Transactional Net Margin Method (TNMM), where the Indian entity operates on a cost-plus model. Typically cost plus a markup of 12-20% depending on the nature of services. The CBDT has issued safe harbour rules under Section 92CB that provide pre-approved margins: for IT and ITeS companies with revenues up to Rs 200 crore, a markup of 17-18% on operating costs is generally accepted without detailed benchmarking.

Double Taxation Avoidance: DTAA, PE Risk, and Withholding Tax

India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. For IT exporters, two issues come up most frequently: Permanent Establishment (PE) risk and withholding tax on software payments.

PE risk: If your employees work at a client site abroad for an extended period (typically more than 183 days in a 12-month period under most DTAAs), the client country may argue that you have a Permanent Establishment there. And tax your profits attributable to that PE. This is a real risk for IT companies that send engineers on-site. Structure your contracts to monitor on-site duration, rotate personnel, and document the nature of work to avoid inadvertent PE creation.

Withholding tax: Many countries treat payments for software as royalties and withhold tax at source (10-15% under most DTAAs, up to 25% without a DTAA). If your client deducts withholding tax on payments to you, you can claim credit for that tax in India under Section 90/91 of the Income Tax Act. Ensure you obtain a Tax Residency Certificate (TRC) and provide it to your overseas client to claim the lower DTAA rate rather than the domestic withholding rate of their country.

OIDAR Services: When GST Applies in Reverse

OIDAR stands for Online Information Database Access and Retrieval services. These are services delivered over the internet where the nature of the service is essentially automated and involves minimal human intervention. Cloud storage, SaaS platforms, digital advertising, online courses, and streaming services.

For Indian IT companies, OIDAR matters primarily in one scenario: when you sell OIDAR services to non-taxable Indian consumers (individuals who are not registered under GST). If a foreign company supplies OIDAR services to Indian consumers, the foreign company is required to register under GST in India and pay tax under the reverse charge mechanism.

Conversely, if you are an Indian SaaS company providing OIDAR services to overseas customers , the transaction is an export of services (zero-rated) and no OIDAR-specific obligation applies to you. The OIDAR rules target inbound services to India, not outbound. However, if your overseas customers include Indian residents consuming your SaaS product (say, through a global subscription), you need to charge GST on the India-origin portion.

Freelancer and Contractor Exports: Compliance Without an IEC

Individual IT professionals exporting services (freelance developers, UI/UX designers, data scientists, DevOps consultants) are a rapidly growing segment of India's software exports. The good news: you do not need an IEC (Importer Exporter Code) to export services. IEC is required only for goods exports. The not-so-good news: every other compliance obligation still applies.

Freelancer compliance checklist

• GST registration: Required if your aggregate turnover exceeds Rs 20 lakh (Rs 10 lakh for special category states). File LUT annually for zero-rated exports. Claim ITC refund on inputs (laptop, software subscriptions, internet).
• FEMA repatriation: All foreign earnings must be received through proper banking channels (AD bank) within 9 months of the invoice date. Payoneer, Wise, and similar platforms are fine as intermediaries, but the funds must ultimately land in your Indian bank account.
• Purpose code: Ensure your bank tags inward remittances with the correct P08xx code, not a generic personal remittance code. Wrong coding blocks your professional income documentation.
• SOFTEX filing: Required if a single project or contract exceeds Rs 25 lakh. Many freelancers with ongoing retainers cross this threshold without realising it.
• Income tax: Foreign income from services is taxable in India at normal slab rates. Claim foreign tax credit under Section 90/91 if the client country withheld tax.

Frequently Asked Questions

Is software export from India treated as goods or services under GST and FEMA?

It depends on delivery. Customised software on physical media (CD, USB) is goods under HS code 8523 and requires a shipping bill. Software delivered electronically (SaaS, custom development, IT consulting, BPO) is export of services, zero-rated under GST with LUT, and reported via SOFTEX form. Most Indian IT exports are services.

Do freelance IT professionals in India need an IEC to export software services?

No. IEC is required only for goods exports, not services. However, freelancers must still comply with GST (register if turnover exceeds Rs 20 lakh, file LUT), FEMA (repatriate within 9 months via AD bank), and RBI reporting (file SOFTEX if project value exceeds Rs 25 lakh). Payments through Payoneer or Wise must ultimately reach an Indian bank account.

What is the SOFTEX form and when do IT exporters need to file it?

SOFTEX is the RBI's export declaration for software and IT services. The equivalent of a shipping bill for service exports. It must be filed quarterly through STPI or your SEZ authority when a single contract exceeds Rs 25 lakh. STPI certifies the form and forwards it to the RBI for EDPMS reporting. Without SOFTEX, inward remittances have no matching export record, causing compliance flags.

Related Guides

• GST for Service Exports. Complete guide to GST zero-rating, LUT filing, and ITC refunds for Indian service exporters.
• FEMA Compliance for Exporters. FEMA obligations for Indian exporters. Repatriation, purpose codes, reporting, and penalties.
• EDPMS Reporting Guide. How to keep your EDPMS entries matched and avoid RBI flags on your IEC.
• FIRC and BRC Guide. Understanding the FIRC, eBRC, and how bank realisation certificates work for exporters.

Update history

• 2026-07-10 First published.