GST Compliance for Foreign-Owned Companies in India

Introduction

For any foreign company operating in India, GST (Goods and Services Tax) is the indirect tax that touches every transaction — every sale, every purchase, every service received, and every service rendered. Unlike income tax (which is an annual exercise), GST is a continuous, monthly compliance obligation with strict deadlines and immediate financial consequences for non-compliance.

India's GST system, since its inception on July 1, 2017, has gone through multiple iterations. The most significant overhaul came in September 2025, when the 56th GST Council Meeting approved the GST 2.0 reforms — simplifying the rate structure from four slabs to essentially three (5%, 18%, and 40% for sin goods). For foreign-owned companies, the core GST obligations remain: register, compute tax correctly, file returns on time, claim input tax credits accurately, and pay the reverse charge on services received from abroad.

This page is a comprehensive guide to GST compliance for foreign-owned Indian subsidiaries. It covers the registration process, monthly return filing, the critical reverse charge mechanism for cross-border services, input tax credit management, export compliance, and the annual return process.

What Is GST Compliance?

GST compliance encompasses all activities required to meet a registered taxpayer's obligations under the Goods and Services Tax laws — the Central GST Act (CGST), State GST Acts (SGST), Integrated GST Act (IGST), and associated rules. The key compliance activities are:

• Registration — Obtaining a GSTIN (GST Identification Number) for each state where the business has a place of supply.
• Invoice compliance — Issuing tax invoices with prescribed particulars (supplier/recipient GSTIN, HSN/SAC codes, tax rate, place of supply).
• Return filing — Monthly GSTR-1 (outward supplies by the 11th), GSTR-3B (summary return with tax payment by the 20th), and annual GSTR-9 (by December 31).
• Tax payment — Paying the net GST liability (output tax minus ITC) through the electronic cash and credit ledgers on the GST portal.
• ITC management — Claiming eligible input tax credits, reconciling with GSTR-2B, and reversing ineligible credits.
• Reverse charge — Self-assessing and paying GST on specified inward supplies (most importantly, import of services from abroad).
• Record-keeping — Maintaining invoices, credit notes, payment vouchers, and supply records for 72 months.

The GST framework is administered by the Central Board of Indirect Taxes and Customs (CBIC) at the central level and the respective state tax authorities at the state level. The GST Council — comprising the Union Finance Minister and all state finance ministers — is the apex body that decides rates, exemptions, and procedural rules.

Eligibility & Requirements

Registration Thresholds

GST registration is mandatory once aggregate turnover exceeds the prescribed threshold:

Special category states include the northeastern states (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim), Himachal Pradesh, Uttarakhand, and Jammu & Kashmir.

Mandatory Registration Regardless of Turnover

Under Section 24 of the CGST Act, registration is mandatory regardless of turnover for:

• Persons making inter-state taxable supplies
• Persons required to pay tax under reverse charge mechanism
• Non-resident taxable persons making taxable supplies in India
• E-commerce operators and suppliers through e-commerce
• Persons who are required to deduct TCS (Tax Collected at Source) under Section 52
• Input service distributors
• Agents of a supplier

For foreign-owned Indian subsidiaries: Registration is almost always required from inception. Even if turnover is below the threshold, the subsidiary will receive services from its foreign parent (management fees, IT support, brand licenses) — triggering GST under reverse charge, which requires mandatory registration. Additionally, most subsidiaries make inter-state supplies, which also requires mandatory registration.

Non-Resident Taxable Person (NRTP)

A foreign company that occasionally supplies goods or services in India without a fixed place of business must register as an NRTP. Key differences from regular registration:

• Registration is granted for 90 days (extendable by 90 days)
• Must deposit estimated GST liability in advance
• Must appoint an authorized representative in India
• Files GSTR-5 (not GSTR-1/3B)
• No turnover exemption — any taxable supply requires registration
• Application must be made at least 5 days before commencing business in India

Step-by-Step Process

Step 1: GST Registration

Registration is completed online on the GST portal (gst.gov.in):

1. Navigate to Services → Registration → New Registration
2. Fill Part A with PAN, mobile number, and email (OTP verification required)
3. Fill Part B with business details, promoter/partner details, authorized signatory, principal and additional places of business, bank accounts, and goods/services details (HSN/SAC codes)
4. Upload required documents — PAN card, proof of business address, bank account proof, authorization letter/board resolution, and photographs of promoters
5. Sign with DSC (Digital Signature Certificate) or EVC (Electronic Verification Code)
6. GSTIN is typically issued within 3-7 working days after verification

For multi-state operations, a separate registration is required in each state where the company has a place of business. The PAN remains the same, but each state GSTIN will have a different state code prefix.

Step 2: Monthly Invoice Management

Every tax invoice must contain prescribed particulars under Rule 46 of the CGST Rules:

• Supplier's name, address, and GSTIN
• Consecutive serial number (unique for each financial year)
• Date of issue
• Recipient's name, address, and GSTIN (for B2B)
• HSN code (for goods) or SAC code (for services)
• Description, quantity, and value of goods/services
• Taxable value and applicable discount
• Rate of GST (CGST + SGST or IGST) and amount of tax
• Place of supply (for inter-state invoices)
• Signature or digital signature of the supplier

For exports, the invoice must additionally contain: "Supply meant for export on payment of IGST" or "Supply meant for export under LUT without payment of IGST", and the shipping bill number and date (added after export).

Step 3: Monthly GSTR-1 Preparation and Filing

GSTR-1 captures all outward supplies for the month. The data is organized in tables:

GSTR-1 is due by the 11th of the following month. Accurate GSTR-1 filing is critical because it directly affects the buyer's ITC — the data auto-populates into the buyer's GSTR-2B.

Step 4: GSTR-3B Filing and Tax Payment

GSTR-3B is the summary return where tax is actually paid. Since July 2025, key fields in GSTR-3B are auto-populated from GSTR-1 data and locked — taxpayers cannot manually edit outward supply figures or tax liability. However, the following can still be entered manually:

• Table 3.1(d) — Inward supplies liable to reverse charge (this is where imported services from the foreign parent are reported)
• Table 4 — Input tax credit details (auto-populated from GSTR-2B but can be adjusted within GSTR-2B limits)

The net tax payable is computed as: Output tax (on outward supplies + on RCM) minus eligible ITC = Net tax payable. Tax must be paid through the electronic cash ledger (for RCM and any balance after ITC set-off) or the electronic credit ledger (for setting off ITC against output tax). GSTR-3B is due by the 20th of the following month.

Step 5: ITC Reconciliation

ITC management requires monthly reconciliation between three data sets:

1. Purchase register (books) — All GST-bearing purchases recorded in the accounting
2. GSTR-2B (auto-populated) — ITC available based on suppliers' GSTR-1 filings, imports data from ICEGATE, and RCM entries
3. GSTR-3B (claimed) — Actual ITC claimed in the summary return

Common mismatches include: invoices in books but not in GSTR-2B (supplier has not filed GSTR-1), invoices in GSTR-2B but not in books (supplier filed but you have not recorded the purchase), and differences in values (supplier reported a different amount). Each mismatch must be investigated and resolved. Under Rule 36(4), ITC can only be claimed to the extent it is reflected in GSTR-2B — no provisional ITC beyond the GSTR-2B amount.

Documents Required

For GST Registration

• PAN of the company
• Certificate of Incorporation / Business registration certificate
• Proof of principal place of business — rent agreement with landlord's NOC, or ownership document, plus a recent electricity/water bill
• Bank account details — cancelled cheque or first page of bank passbook
• Authorized signatory details — PAN, Aadhaar, photograph, and Digital Signature Certificate
• Board resolution or authorization letter appointing the authorized signatory
• List of goods and services with HSN/SAC codes

Additional for Foreign-Owned Entities

• Parent company's registration documents (apostilled and notarized)
• Passport of foreign directors (apostilled copy)
• Indian resident authorized signatory (foreign nationals cannot be the sole authorized signatory on the GST portal without an Indian-resident co-signatory in practice)
• For NRTP registration: advance deposit of estimated GST liability, passport as identity proof, and details of the authorized representative in India

Key Regulations & Legal Framework

Central Goods and Services Tax Act, 2017 (CGST Act)

• Section 9 — Levy and collection of CGST. Section 9(3) specifies supplies on which the recipient must pay tax under RCM. Section 9(4) covers RCM on supplies from unregistered persons.
• Section 16 — Eligibility and conditions for ITC. ITC can be claimed only if the supplier has furnished GSTR-1, the recipient has received the goods/services, tax has been actually paid to the government, and the recipient has furnished the return (GSTR-3B).
• Section 17(5) — Blocked credits. ITC cannot be claimed on motor vehicles (with exceptions), food and beverages, outdoor catering, beauty treatment, health services, club membership, rent-a-cab, life/health insurance (with exceptions), travel benefits for employees on vacation, and works contract services for construction of immovable property.
• Section 24 — Compulsory registration regardless of turnover (inter-state supply, RCM liability, NRTP, e-commerce, etc.).
• Section 34 — Credit notes and debit notes.
• Section 122 — Penalties for offenses: INR 10,000 or the amount of tax evaded, whichever is higher.
• Section 132 — Criminal offenses: imprisonment of 1-5 years and fine for tax evasion exceeding INR 5 crore.

Integrated Goods and Services Tax Act, 2017 (IGST Act)

• Section 2(11) — Definition of 'import of services' — a supply where the supplier is outside India, the recipient is in India, and the place of supply is in India.
• Section 5(3)/(4) — Levy of IGST on reverse charge basis (mirrors Section 9(3)/(4) of CGST Act for inter-state/import supplies).
• Section 7 — Place of supply for goods within India (inter-state and intra-state).
• Section 12 — Place of supply for services within India.
• Section 13 — Place of supply for services where the supplier or recipient is outside India (critical for cross-border services).
• Section 14 — Special provision for OIDAR services.
• Section 16 — Zero-rated supplies (exports and supplies to SEZs).

Key Rules

• Rule 36(4) — ITC restricted to amounts reflected in GSTR-2B.
• Rule 42/43 — Apportionment of ITC between taxable and exempt supplies.
• Rule 89 — Refund of ITC on zero-rated supplies (for LUT exporters).
• Rule 96 — Refund of IGST on exports (for exporters paying IGST).
• Rule 96A — Letter of Undertaking for exports without IGST.

Foreign-Specific Considerations

Reverse Charge on Imported Services — The Core Obligation

For most foreign-owned Indian subsidiaries, the single most important GST obligation is the reverse charge on services received from the foreign parent and overseas affiliates. Under Section 5(3) of the IGST Act, when the Indian entity receives any taxable service from a person outside India, the Indian entity must pay IGST under the reverse charge mechanism.

Common intercompany services that trigger RCM:

• Management and administrative services from the parent company
• IT infrastructure and support services from a group shared service center
• Brand licensing and royalty payments
• Consulting and advisory services from foreign affiliates
• Recruitment or HR services provided by the parent
• Software licensing (if classified as a service)

The GST rate for most services is 18%. The tax is paid through the electronic cash ledger (not through ITC) and reported in Table 3.1(d) of GSTR-3B. The paid amount is immediately available as ITC in the same return period. The net cash impact is effectively nil (assuming the company has output tax liability to offset the ITC), but the compliance steps must be followed precisely.

OIDAR Services — GST on Digital Services

If the foreign parent or any group entity provides Online Information and Database Access or Retrieval (OIDAR) services to Indian consumers, special rules under Section 14 of the IGST Act apply:

• If the recipient is a registered business → the Indian entity pays GST under RCM (standard treatment).
• If the recipient is an unregistered individual (B2C) → the foreign supplier must register for GST in India and charge 18% IGST.
• If an intermediary (like an app store) is involved, the intermediary may be deemed the supplier and responsible for GST.

The Finance Bill 2025 introduced the Digital Identity Provider (DIP) framework requiring foreign digital platforms to maintain transaction records linked to Indian users. This increases the compliance burden for foreign digital service providers.

Place of Supply for Cross-Border Transactions

Place of supply determines the tax jurisdiction (and whether CGST+SGST or IGST applies). For cross-border services (Section 13, IGST Act):

The intermediary service classification is a contentious area. Many Indian IT and BPO companies argue their services are exports (place of supply = location of the overseas recipient), but tax authorities sometimes classify them as intermediary services (place of supply = India), resulting in domestic GST instead of zero-rating. This issue is under active litigation.

GST Refunds for Exporters

If your Indian subsidiary exports goods or services, the exports are zero-rated under Section 16 of the IGST Act. Two refund routes are available:

1. LUT route (Rule 96A) — Export without paying IGST, and claim refund of accumulated ITC on inputs under Rule 89. The refund formula: (Zero-rated supply turnover × Net ITC) ÷ Adjusted Total Turnover.
2. IGST payment route (Rule 96) — Pay IGST on exports, and claim automatic refund based on shipping bill and GSTR-1 data. The refund is processed by the IGST system without a separate application.

For exports of services, the conditions for zero-rating under Section 2(6) of the IGST Act are: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange (or Indian rupees where permitted by RBI), and the supplier and recipient are not merely establishments of the same person. The last condition is critical for intercompany services — services from the Indian subsidiary to a branch or establishment of the same entity abroad do not qualify as exports.

FEMA and GST Interplay

Foreign exchange regulations under FEMA interact with GST in several areas:

• Export proceeds must be realized within 15 months (extended from 9 months by RBI in November 2025). Non-realization can trigger GST refund reversal for exporters who claimed ITC refund.
• Inward remittances for services rendered to foreign clients must be accompanied by FIRC (Foreign Inward Remittance Certificate) to evidence foreign exchange receipt — needed for proving export of service status under GST.
• Intercompany payments for imported services (triggering RCM) are outward remittances under FEMA, requiring Form 15CA/15CB compliance under the Income Tax Act.

Benefits & Advantages

• Full reverse charge compliance — Every service received from the foreign parent or overseas affiliates is correctly identified, GST is computed and deposited, and ITC is claimed — preventing exposure during GST audits.
• Optimized input tax credit — Monthly reconciliation with GSTR-2B ensures every eligible credit is claimed and no ineligible credit is taken.
• Export cash flow optimization — LUT filing and ITC refund processing minimize the working capital locked up in GST.
• Zero penalty filing — All returns filed before deadlines, all tax paid on time, no late fees or interest charges.
• Multi-state compliance — Separate GSTIN management, inter-state stock transfer reporting, and consolidated GST MIS for management.
• GST 2.0 readiness — All product/service classifications updated to the simplified 5%/18%/40% rate structure.
• Audit-ready reconciliation — Monthly schedules for turnover vs. GSTR-1, ITC (books vs. GSTR-2B vs. GSTR-3B), and RCM liability ensure smooth annual return and audit.
• Cross-border transaction expertise — Place-of-supply determination, OIDAR classification, intermediary service analysis, and export compliance handled by GST practitioners with cross-border experience.

Common Mistakes to Avoid

• Not paying reverse charge on services from the foreign parent — This is the single most common GST mistake by foreign-owned subsidiaries. Every management fee, royalty, IT support charge, or consulting fee from abroad triggers RCM. The tax must be paid in cash (electronic cash ledger), not offset against ITC.
• Missing the LUT filing at the start of the financial year — If you export without an LUT, you must pay IGST on exports and then wait for a refund. Many companies miss the LUT renewal and discover the lapse only when filing the first export invoice of the year.
• Claiming ITC on blocked items — Section 17(5) blocks ITC on motor vehicles, food and beverages, club memberships, outdoor catering, beauty treatment, and several other categories. Foreign companies unfamiliar with these restrictions often claim credits that get reversed during audits, with interest.
• Incorrect HSN/SAC codes — Using the wrong HSN code can result in the wrong tax rate being applied and ITC mismatches for the buyer. It also creates issues during GSTR-9 reconciliation when HSN-wise summary does not match invoice data.
• Not reconciling GSTR-2B with purchase register monthly — If you wait until year-end to reconcile, mismatches pile up, supplier follow-ups become difficult (especially for small vendors who may not respond), and GSTR-9 preparation becomes a painful exercise.
• Ignoring inter-state stock transfers as deemed supply — When goods are transferred between your company's branches in different states (even without a sale), it is treated as a deemed supply under GST and IGST must be charged. Many companies miss this, creating underpayment of IGST.
• Not filing returns within the 3-year time limit — From July 2025, all GST returns must be filed within 3 years of their original due date. If you have unfiled returns from earlier periods, the window to file them is closing.

Timeline & What to Expect

For newly registered companies, the first GSTR-1 and GSTR-3B are due for the month in which the GSTIN is obtained. For example, if you receive your GSTIN on March 15, your first GSTR-1 is due by April 11 (for March) and GSTR-3B by April 20 (for March).

Comparison with Alternatives

Regular Scheme vs. Composition Scheme

The regular GST scheme vs. composition scheme is a common decision point, though it rarely applies to foreign-owned companies:

Foreign-owned Indian subsidiaries almost always operate under the regular scheme because they: make inter-state supplies, need ITC on inputs (especially IGST paid on imports and RCM), and receive services from abroad (requiring RCM compliance with ITC offset). The composition scheme is designed for small, purely local businesses.

In-House GST Compliance vs. Outsourced

For a foreign-owned subsidiary with monthly revenue under INR 5 crore, outsourcing GST compliance to a specialized firm is typically more efficient than hiring a dedicated in-house GST resource. The compliance involves not just return filing but continuous monitoring of CBIC notifications, rate changes, ITC rule amendments, and place-of-supply interpretations — areas where a specialized firm stays current as part of its core practice. In-house compliance makes sense for larger operations with high transaction volumes (1,000+ invoices per month) and dedicated indirect tax teams.