Tax for IT and software services providers in India

Export of IT and software services is zero-rated: where the recipient is outside India, paid in foreign exchange, with the place of supply outside India, you export under a Letter of Undertaking with no GST out and a refund of input credit. Domestic IT for Indian clients is 18% GST. From 30 March 2026, the omission of Section 13(8)(b) means even intermediary-type services (BPO, KPO, agency) to foreign recipients now qualify as zero-rated exports. Information technology is a Section 44AA(1) activity, so an individual IT professional can use 44ADA at 50% (an IT business uses 44AD), and the old SEZ 10AA holiday is closed to new units since 30 June 2020.

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec 44ADA (individual IT professional) or 44AD (IT business)
Deemed profit rate:: 50% (44ADA) / 6% digital (44AD)
Classification:: profession

GST treatment

Slab:: 18%
SAC:: 998313/9983 IT services 18% domestic; export of services zero-rated under LUT (full ITC refund)
Composition eligible:: No
Reverse charge (RCM):: Not applicable

TDS exposure

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

IT and software services are dominated by one question: are you exporting? Export of services is zero-rated, no GST charged out, full input credit refundable, where the recipient is outside India, paid in foreign exchange, with the place of supply outside India. You either export under a Letter of Undertaking (LUT) without paying GST, or pay IGST and claim a refund. Domestic IT work for Indian clients is 18% GST. Two further points matter: from 30 March 2026 the omission of Section 13(8)(b) means even intermediary-type services to foreign recipients now qualify as zero-rated exports, and information technology is one of the few activities in the Section 44AA(1) list, so an individual IT professional can use 44ADA at 50% (while an IT business uses 44AD).

What business structure do IT and software services providers use?

The common patterns for IT and software services providers are: Sole proprietor, common for freelance developers (44ADA available, or 44AD), LLP or partnership, for a software-services firm, Private limited, for a scaling product or services company (foreign clients, funding). The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

Zero-rated export under an LUT

Where you supply IT or software services to a recipient outside India, paid in convertible foreign exchange, with the place of supply outside India, it is an export of services and zero-rated: no output GST, and full input-tax credit recoverable. The clean route is a Letter of Undertaking (LUT), under which you export without charging GST and claim a refund of unutilised input credit. Alternatively you pay IGST and claim it back. Domestic IT work for an Indian client is 18% GST. Keep bank-realisation evidence of the foreign exchange to support the export treatment.

Export of IT services (recipient outside India, paid in forex, place of supply outside India) is zero-rated; export under an LUT with no GST and an input-credit refund; domestic IT is 18%. (IGST Act 2017 s.2(6) (export of services) + s.16 (zero-rated supply, LUT/refund))

Intermediary services are now exports (from 30 March 2026)

A long-standing barrier denied export status to BPO, KPO and agency-type services by treating them as intermediary services with a place of supply in India. The Finance Act 2026 omitted Section 13(8)(b) with effect from 30 March 2026, so the place of supply for intermediary services now defaults to the recipient's location. The result: intermediary-type services to foreign recipients now qualify as zero-rated exports too. This is a major change for the IT/ITES sector and applies from before tax year 2026-27. Characterisation still matters, structure your contracts so you are the main supplier on your own account, not a middleman, and align your GST and any transfer-pricing positions.

Section 13(8)(b) was omitted from 30 March 2026, so intermediary services to foreign recipients now have their place of supply at the recipient's location and qualify as zero-rated exports. (IGST Act 2017 s.13(8)(b) (omitted by the Finance Act 2026, effective 30 March 2026); s.13(2) (default place of supply))

Presumptive choice and SEZ legacy

Information technology is one of the specified activities under Section 44AA(1), so an individual IT professional (for example a freelance developer) can use Section 44ADA at 50% of receipts, up to Rs 75 lakh where cash is 5% or less. An IT business (a firm or services company that is not a notified profession in substance) uses Section 44AD instead. On income-tax holidays: the SEZ unit deduction (the old 10AA, now Section 144 of the 2025 Act) is legacy only, the window for new units closed on 30 June 2020, so a new IT exporter cannot claim it. A startup may instead look at the Section 80-IAC startup holiday. Domestic professional fees attract 194J at 10%.

Information technology is a Section 44AA(1) activity, so an individual IT professional can use 44ADA at 50%; the SEZ unit holiday (10AA) is closed to new units since 30 June 2020. (Income-tax Act 1961 s.44ADA + s.44AA(1) (Income-tax Act 2025 s.58); SEZ 10AA (Income-tax Act 2025 s.144, new-unit sunset 30 June 2020))

Allowable expenses

Category	Examples	Tax treatment
Equipment and software	Computers, servers, dev tools, cloud and SaaS subscriptions	Deductible; input credit if registered; in deemed profit under presumptive
Workspace	Office or co-working rent, internet, electricity	Deductible if keeping books; apportion home-office use
Team and contractors	Developers, freelancers, agencies	Deductible; watch 194J/194C TDS if you pay them
Foreign vendors	Overseas SaaS, hosting, contractors	Deductible; Section 195 / 15CA-15CB may apply
Admin	Accounting, GST and LUT filing, professional indemnity	Deductible business expense

Vehicle and travel costs

Vehicle costs are usually minor for an IT provider; where a vehicle is genuinely used for the business, costs are deductible under regular books or treated as included in the deemed profit under presumptive taxation.

Capital allowances and equipment

On regular books, computers and servers depreciate at 40% WDV and other equipment at 15%. Under presumptive taxation (44ADA or 44AD) no separate depreciation is claimed, but keep invoices for the written-down value on any later sale.

Worked example

Devika — Bengaluru, KA

freelance software developer serving foreign clients (2026-27)

Annual receipts Rs 45 lakh, almost all from clients in the US and EU, paid in foreign exchange. Works alone from home.

Her work for foreign clients is an export of services: she files an LUT and invoices with no GST, claiming a refund of input credit on her tools and subscriptions. For income tax, information technology is a Section 44AA(1) activity, so she uses Section 44ADA: deemed income 50% of Rs 45 lakh = Rs 22.5 lakh, no detailed books, within the Rs 75 lakh limit (cash under 5%). She keeps bank-realisation certificates as evidence of the foreign-exchange receipts to support the zero-rated export treatment.

Common audit triggers for IT and software services providers

Treating foreign-client income as zero-rated export without forex realisation evidence
Contract drafting that makes you look like an intermediary rather than the main supplier
Mismatch between GST export positioning and transfer-pricing characterisation (for captives)
Claiming the SEZ 10AA holiday for a new unit (closed since 30 June 2020)
194J TDS in 26AS/AIS not reconciled with declared receipts
An IT business wrongly using 44ADA when it is not a profession in substance

Frequently asked questions

Is my income from foreign clients taxed in India?+

For income tax, yes, it is your business or professional income reported in INR. For GST, supplying IT services to a recipient outside India, paid in foreign exchange, with the place of supply outside India, is a zero-rated export: you export under a Letter of Undertaking with no GST charged and claim a refund of input credit. Keep bank-realisation evidence of the forex to support the export treatment.

What changed for BPO and intermediary services in 2026?+

The Finance Act 2026 omitted Section 13(8)(b) with effect from 30 March 2026. Previously, intermediary services were treated as having a place of supply in India, denying export status to many BPO, KPO and agency services. Now the place of supply defaults to the recipient's location, so intermediary-type services to foreign recipients qualify as zero-rated exports. It is a major, recent change for the sector.

Can an IT professional use the 50% presumptive scheme?+

Yes, if you are an individual professional. Information technology is one of the activities specified under Section 44AA(1), so an individual IT professional (such as a freelance developer) can use Section 44ADA at 50% of receipts, up to Rs 75 lakh where cash is 5% or less. An IT business that is not a profession in substance uses Section 44AD at 6 or 8% instead.

Can a new IT exporter claim the SEZ tax holiday?+

No. The SEZ unit income-tax holiday (the old Section 10AA, now Section 144 of the 2025 Act) closed to new units on 30 June 2020, so a new IT exporter cannot claim it, only units that qualified before that date continue their remaining window. A startup may instead consider the Section 80-IAC startup tax holiday if it meets the conditions.

Last reviewed: 29 May 2026