GST on Cross-Border Services: Reverse Charge Rules
When an Indian entity pays a foreign parent or affiliate for services, GST is usually payable by the Indian recipient under reverse charge -- not the foreign supplier. Here is how that actually works.
Under India's GST law, the "import of services" -- where the supplier is located outside India and the recipient is in India -- is generally taxed under the reverse charge mechanism. The Indian recipient, not the foreign supplier, is liable to pay GST directly to the government, and separately claim input tax credit if eligible.
What counts as import of services
A supply qualifies as import of services when the supplier is outside India, the recipient is in India, and the place of supply is in India. This routinely captures intercompany charges that foreign groups treat as routine internal recharges: management fees, IT support, brand/royalty charges, and secondment costs charged by a foreign parent to its Indian subsidiary.
How reverse charge actually works in practice
- The Indian entity self-invoices and pays GST on the value of the service received, at the applicable rate for that service category.
- This GST is paid in cash -- it cannot be offset against existing input tax credit balances at the point of payment.
- Once paid, the Indian entity can generally claim it back as input tax credit, subject to the normal eligibility rules, but the cash outflow happens first.
- Missing reverse charge on intercompany invoices is one of the most common findings in GST audits of foreign-owned Indian subsidiaries, because it often isn't flagged until the invoice is booked and the accounting team assumes GST was already handled by the vendor.
Where this trips up foreign parents specifically
Group finance teams outside India frequently do not know reverse charge applies to their own intercompany invoices to the Indian entity, because from the parent's perspective it looks like a routine internal recharge with no GST implication at all. The obligation sits entirely with the Indian recipient, and it needs to be built into the Indian entity's month-end close process, not assumed to be someone else's problem.
The practical fix
Flag every intercompany invoice from a non-Indian entity for a reverse-charge review before booking it, and build the GST payment into the cash flow forecast for the month it's due -- not the month the credit is eventually recovered.