A business owner we spoke with had been paying a foreign consultant for months, without realising he owed GST on that payment himself. He assumed GST only applied when he charged customers, not when he paid someone abroad.

This mix-up is common. GST on import of services works differently from domestic supply, and a lot of businesses miss it entirely until a notice arrives.

This guide covers how GST treats import of goods and services under GST, from place of supply to ITC, in plain language.

What is Import Under GST?

Bringing goods or services into India from outside the country triggers GST, but not in the way most domestic transactions do. Imports sit at the intersection of the Customs Act and the IGST Act, and the rules differ depending on whether you’re importing goods or services.

Import of Services Under GST

Definition of Import of Service

An import of service happens when three conditions are met together: the service provider is located outside India, the recipient is located in India, and the place of supply for that service falls within India.

Related Party Transactions (Deemed Supply)

Here’s a detail many businesses overlook. If a foreign branch or parent company provides a service to its Indian entity without charging anything, GST law still treats this as a deemed supply. Even at zero consideration, tax becomes payable on it.

Place of Supply for Import of Services

For most services, the place of supply is simply the location of the recipient, which means India, and GST applies accordingly.

There’s a notable exception worth watching for intermediary or commission-based payments to foreign agents. The rules around when these qualify as an export of service (and therefore aren’t taxed the same way) have tightened in recent updates. Since this specific area changes periodically, it’s worth checking the latest CBIC notifications before assuming a commission payment falls outside GST.

Reverse Charge Mechanism (RCM) on Import of Services

Import of services doesn’t work like a normal purchase where the seller charges you tax. Instead, the Indian recipient has to self-assess and pay GST directly to the government under the Reverse Charge Mechanism.

This shifts the compliance burden onto the importer, not the foreign supplier, since the foreign party typically isn’t registered under Indian GST.

Self-Invoicing for Import of Services

Since there’s no regular tax invoice from a foreign supplier, GST law requires the Indian recipient to raise a self-invoice. This needs to be issued at the time payment is made to the overseas vendor, and it becomes the supporting document for both the RCM payment and the ITC claim that follows.

Valuation of Imported Services

Tax is calculated on the actual price paid or payable to the foreign vendor. For currency conversion, the applicable RBI reference rate on the date of the invoice or payment, whichever comes first, needs to be used.

If a service is received free of cost from a related party, it still needs to be valued, typically based on its open market value, rather than being treated as tax-free simply because no money changed hands.

Import of Goods Under GST

Definition of Import of Goods

Bringing goods into India from outside the country is treated as an inter-state supply under GST, and IGST is levied on it as a duty of customs, collected alongside other import duties.

Place of Supply for Import of Goods

The place of supply for imported goods is the location of the importer who files the Bill of Entry, regardless of where the goods physically end up afterward.

Bonded Warehouse Transactions

When goods enter a bonded warehouse, IGST isn’t triggered immediately. It only becomes payable when the goods are cleared for home consumption, meaning when they actually leave the warehouse for use or sale.

High Sea Sales

Sales that happen before goods cross India’s customs frontier are exempt from GST at that stage. Only The final buyer, who clears the goods through customs, pays the applicable IGST.

Valuation of Imported Goods

Basic Customs Duty (BCD)

Calculates based on the assessable value of the goods. It usually follows the CIF (Cost, Insurance, Freight) value.

Social Welfare Surcharge (SWS)

The authorities add the Social Welfare Surcharge (SWS) as a percentage of the Basic Customs Duty. It increases the total landed cost.

IGST Calculation on Imports

IGST on imported goods is calculated on the assessable value plus BCD plus SWS combined, not just on the base value of the goods. For currency conversion here, the CBIC notified exchange rate on the date the Bill of Entry is presented applies, which can differ from the standard bank or RBI rate.

Duty rates on specific goods categories do get revised from time to time through Finance Bill changes, so it’s always worth verifying current rates against the latest CBIC notification before finalising your cost calculations.

Input Tax Credit (ITC) on Import of Goods

IGST paid at customs on imported goods is fully available as ITC for business use, including on capital goods like machinery and plant equipment. BCD and SWS, however, are treated as a cost and don’t qualify for credit.

Input Tax Credit (ITC) on Import of Services

ITC on imported services can generally be claimed in the same month the RCM tax is paid, provided a valid self-invoice exists and the tax has actually been deposited with the government.

Bill of Entry (BOE): The Key ITC Document

For goods, the Bill of Entry is your primary supporting document for claiming ITC. Getting your GSTIN correctly mentioned on it isn’t optional, it’s what allows the credit to flow through to your GST records at all.

GSTR-2B Sync & ITC Matching for Imports

Import data moves from the customs system, ICEGATE, directly into your GSTR-2B. In practice, it’s best not to claim ITC until it actually shows up there. If it’s missing, most GST portals offer a way to search for the Bill of Entry manually and pull the data in.

Blocked Credit: When ITC on Imports is Not Allowed

Not every import qualifies for credit. Common situations where ITC gets blocked include:

• Goods used for CSR (Corporate Social Responsibility) activities
• Goods brought in for personal consumption
• Gifts or free samples, where no GST is charged on the eventual output

Common Mistakes in GST Import Compliance

• Forgetting to self-invoice and pay RCM on services imported from abroad
• Assuming free-of-cost services from a related party aren’t taxable
• Claiming ITC before the Bill of Entry data reflects in GSTR-2B
• Using the wrong exchange rate, bank rate instead of the CBIC notified rate for goods
• Missing GSTIN entry on the Bill of Entry, which blocks the credit flow entirely

Why Choose FEMA Expert for Import Compliance & EXIM Advisory

At FEMA Expert, we help businesses work through the overlap between GST import rules, customs valuation, and foreign exchange compliance, so RCM payments, self-invoicing, and ITC claims don’t get missed.

Since import compliance often connects to broader cross-border transactions, our team also supports related FEMA advisory needs, including matters handled by our ECB expert team for foreign borrowings and our FDI consultant in India team for inbound investment compliance.

Unsure how GST applies to a specific import transaction? Reach out to FEMA Expert for clarity.