20 June 20267 min read
Reverse Charge Mechanism (RCM) on SaaS: Startup Compliance Checklist
Understand how RCM applies to foreign software tool purchases (AWS, Slack, Github) and how to claim Input Tax Credit on these expenses.
RCMStartupsGST
Understanding RCM on SaaS Imports
Under the Indian GST framework, when you import services from an overseas supplier (e.g., Slack, GitHub, Amazon Web Services, or OpenAI), the supplier does not charge Indian GST. Instead, the liability to pay GST shifts to the recipient in India. This is called the Reverse Charge Mechanism (RCM).
Startups often overlook this requirement, which can result in interest and penalties during a tax audit.
The Import Checklist
- Identify foreign payments made on credit cards or wire transfers for overseas software tools.
- Assess whether the service qualifies as OIDAR (Online Information Database Access and Retrieval) or regular service imports.
- Pay 18% IGST under the reverse charge mechanism via your monthly GSTR-3B return.
- Issue a self-invoice for the RCM transaction.
- Claim the paid IGST as Input Tax Credit (ITC) in the same return cycle (if eligible).