GST Rates in India 2026: Updated List of Tax Slabs

The standard GST rate in India is 18%, and that is the rate foreign companies need to plan for whenever they buy professional, technical, or back-office services from an Indian provider. India runs a destination-based Goods and Services Tax, and after the 2025 reform there are three working slabs that matter: 5%, 18%, and 40%. Almost every service a global employer touches in India falls into the 18% slab.

That said, the rate itself is only half of the question. What actually determines whether you pay 18% in practice is who supplies the service, where the law treats the service as being supplied, and whether the engagement satisfies the export of services test.

This guide walks through how the GST rate structure works as of 2026, when 18% lands on foreign payers, and how the common hiring models compare.

If your priority is full-time talent rather than project work, you can read our companion guide on hiring employees in India alongside this one.

What is the GST rate in India?

India's GST has four working bands: 0% for essentials and exempt items, 5% for select goods and lower-priority services, 18% as the standard rate for the majority of goods and services, and 40% for sin and luxury categories.

For foreign companies, the only band that matters in day-to-day operations is 18%, because that is the rate applied to professional services, software services, support functions, marketing, consulting, and most other categories a global employer would procure from India.

GST is collected in three forms:

1. CGST and SGST for intra-state supplies inside India
2. IGST for inter-state supplies
3. Cross-border transaction involving a foreign party

When a foreign company is invoiced by an Indian provider for a taxable supply, the tax that appears is IGST at 18%. The split between CGST and SGST is an internal Indian accounting detail and has no impact on the foreign payer.

From our experience helping foreign companies engage Indian talent, the 18% number tends to be misread in two ways. Some teams assume it never applies because they pay from abroad in USD or GBP. Others assume it always applies and absorb a cost they did not need to bear. The right answer depends on the legal place of supply, which is where the rules in Section 13 of the IGST Act come in.

What changed in India's GST rates in 2025 and 2026?

The 56th GST Council meeting set out a simplified rate structure known as GST 2.0, which took effect on September 22, 2025. The old 12% and 28% slabs were largely retired and their items moved into 5% or 18%.

A new 40% band was introduced for a narrow set of luxury and demerit categories. The standard 18% rate stayed where it was and continues to be the default for most goods and most services.

The second change is more specific to cross-border engagements. The Finance Act, 2026 omitted Section 13(8)(b) of the IGST Act with effect from March 30, 2026. That clause used to pin the place of supply of intermediary services to the location of the Indian supplier.

The result was that Indian agents and facilitators serving foreign clients were charged 18% GST even though their customer sat outside India. With that clause gone, intermediary services now follow the default recipient-location rule, and genuine facilitation work for a foreign client can be zero-rated as export.

From what we've seen, this materially improves the tax position for agency, recruitment, and lead-generation arrangements that previously carried an embedded 18% cost.

Two cautions are worth keeping in mind:

• First, the change is prospective. Supplies with a time of supply before March 30, 2026 remain governed by the old rule.
• Second, the substance test for what counts as an intermediary, set out in Section 2(13) of the IGST Act and clarified in CBIC Circular 159/15/2021, has not changed.

A contract label does not override the facts of the engagement.

When does the 18% GST rate apply to foreign companies?

18% IGST attaches whenever a service supplied by an Indian provider is legally treated as supplied inside India.

That happens in three main situations: the work is physically performed in India, the service is consumed by an Indian customer of the foreign client, or the foreign company has a taxable presence in India that is the real recipient of the service.

Companies often underestimate the first point. A consultant flying in to run training, an engineer performing on-site installation, or a tester working on goods that sit in India will all be treated as supplying services in India under Section 13(3) of the IGST Act.

The fact that the invoice carries a foreign address and is paid in USD does not change that. The same logic applies to inspection, repair, physical testing, and any work where the physical presence of the supplier or the goods anchors the supply to Indian territory.

The second trap is structural. If the Indian professional is in substance arranging the supply of something between the foreign client and Indian customers, rather than supplying its own service to the foreign client, the supply has historically been treated as intermediary and taxed at 18%.

After March 30, 2026 this exposure is significantly lower, but the substance test still has to be passed. Misreading this is one of the most common sources of disputes with Indian tax authorities, especially in marketing, support, and back-office arrangements.

We cover related cross-border exposure in detail in our piece on contractor misclassification risk in India.

When can Indian services be zero-rated for a foreign company?

Under Section 2(6) of the IGST Act, an Indian service supplier can treat a supply to a foreign client as a zero-rated export only when all five conditions are satisfied at once: the supplier is in India, the recipient is outside India, the place of supply is outside India under the Section 13 rules, payment is received in convertible foreign exchange, and the supplier and recipient are not merely branches of the same legal entity.

Conditions one, two, and four are usually easy to meet. The condition that breaks most often is the place of supply. If Section 13 places the supply inside India, the export claim collapses and 18% applies on the invoice. The fifth condition matters in a narrower set of cases: it stops a foreign company's Indian branch from billing the overseas head office and calling that an export. A separate Indian subsidiary is a different legal person and its supplies to a foreign parent can qualify, which is confirmed by CBIC Circular 161/17/2021-GST.

For Indian freelancers and small services companies, zero-rated status is operationally available through the Letter of Undertaking route, which lets them invoice at 0% without paying IGST upfront. This is the standard mechanism for genuine remote work delivered to a foreign client. If you want a primer on how this looks when paying individuals directly, our guide on hiring and paying contractors in India walks through the practical mechanics.

How does GST work when foreign companies pay Indian contractors?

When a foreign company pays an Indian freelancer or independent contractor directly, the Indian individual is the supplier and the GST analysis sits with them. For remote-delivered work such as software development, design, content, digital marketing, or consulting performed from India for a client abroad, the default rule applies and the supply can be a zero-rated export. The contractor needs to be GST-registered and to have filed a Letter of Undertaking to invoice at 0% without paying IGST upfront.

Two things go wrong in practice. The first is that contractors under the GST threshold do not register at all, then cross it and suddenly add 18% to invoices retroactively or pass on accumulated tax in price negotiations. The second is misclassification: a contractor relationship that looks economically like employment can be reclassified by Indian authorities, which carries its own GST and labour-law consequences. We have covered these dynamics in our piece on cross-border contractor payment risks in India.

One pattern we've consistently noticed is that foreign payers assume their treasury is fully outside Indian GST because they only ever send money out. That is broadly correct on outflows, but the reverse-charge mechanism described later in this guide can pull GST liability back into the relationship in specific situations. Mapping where the legal recipient sits, not just where the payment originates, is the safer way to think about this.

How does GST apply when a foreign company uses an EOR or Indian services provider?

When a foreign company engages an Indian services company or an Employer of Record, the Indian entity is the legal supplier and carries the GST analysis. The same five-condition export test applies, but two distinctions tend to drive the outcome: whether the Indian entity supplies on its own account or merely facilitates, and whether the work is performed remotely or physically inside India.

For a standard EOR engagement, the foreign company is the genuine recipient of the service, the work is delivered remotely from India, and payment arrives in convertible foreign currency. That structure is typically zero-rated as export of services. The EOR's invoice to the foreign company carries 0% GST and is settled in USD, GBP, EUR, or another freely convertible currency. Importantly, the salaries paid by the EOR to Indian employees are not a supply under GST at all. Wages fall outside the GST regime entirely and are handled through TDS and Indian payroll, not GST.

This is one of the reasons many global teams prefer the EOR route over a contractor model or a quick subsidiary setup. The EOR holds Indian GST registration, files Indian returns, and absorbs the compliance work, while the foreign client receives a clean, zero-rated export invoice. Wisemonk operates as an India-native EOR for exactly this set of foreign hiring needs. To see how this compares with setting up your own legal vehicle, our guide on understanding the risks of permanent establishment goes deeper into why a poorly structured local presence can pull a foreign company into India's tax perimeter.

What is the reverse charge mechanism, and when does it affect foreign payers?

The reverse charge mechanism is the mirror image of the export rules. When an Indian person procures a service from a foreign supplier for business use, the Indian recipient is required to self-account and pay IGST at 18% on the import of services, under Section 5(3) of the IGST Act read with Notification No. 10/2017-IGST(Rate). This is one of the rules that catches foreign companies off guard, because it runs in the opposite direction to the standard export-of-services discussion.

Where this becomes relevant for a foreign payer is in any structure that involves an Indian entity inside the supply chain. If the foreign company has an Indian subsidiary, branch, or any taxable establishment, and that Indian entity is the recipient of a foreign service, the Indian side has a reverse-charge GST obligation. In practice this means software licences, intra-group management fees, group-level marketing services, and similar charges from the parent to the Indian subsidiary attract 18% IGST under reverse charge, which the Indian entity then claims as input tax credit where eligible.

If your structure is purely contractor-based or EOR-based and you have no Indian legal vehicle, the reverse charge is generally not your problem. It becomes your concern at the point where you incorporate locally or set up a permanent establishment. In many cases, global employers realize this only after the subsidiary is live and the first audit query lands, which is why it pays to model the GST flows before incorporation.

How can global employers avoid unnecessary GST exposure in India?

Most GST cost on Indian engagements is a structuring outcome, not an unavoidable tax. Foreign companies that build their Indian operations carefully tend to operate within the export-of-services framework end to end, which means GST is effectively zero-rated across the relationship.

A few principles drive this in practice:

• Map the delivery, not the invoice: Remote-delivered work for a foreign client generally supports zero-rating. Work physically performed inside India under Section 13(3) generally does not.
• Characterise the role in the contract: State clearly whether the Indian party is providing its own service on a principal-to-principal basis or merely arranging supply between you and Indian customers. The own-account label, when supported by facts, protects export status.
• Separate distinct services into distinct agreements: Bundling facilitation with own-account support invites composite-supply treatment, which can drag the whole engagement into the 18% slab.
• Settle who bears any GST at the outset: Make the contract explicit about whether prices are GST-inclusive or GST-exclusive so that an 18% charge does not become a downstream dispute.
• Document foreign exchange receipt: FIRC or e-FIRA records evidencing the recipient's overseas location protect the export position and any refund claim.
• Watch the reverse-charge direction whenever you have an Indian entity: Imports of services into India from the parent or other group entities trigger 18% IGST under reverse charge.

How Wisemonk helps global employers stay on the right side of GST

For most foreign companies hiring in India, GST is less of a tax question and more of a structuring question. The 18% standard rate is fixed, but whether it shows up on your invoices depends on how the engagement is set up. Wisemonk runs as an India-native EOR and Contractor-of-Record (COR) for foreign companies, which means the Indian compliance perimeter, including GST registration, returns, and export-of-services documentation, sits with us rather than with you.

Your team in India is employed on Wisemonk's books, paid in INR, and onboarded under Indian labour law, while you receive a single zero-rated export invoice in USD or another freely convertible currency.

From what we've seen across hundreds of cross-border setups, this is the cleanest way to keep a foreign company entirely outside India's GST perimeter while still building real teams on the ground.

We also support contractor engagements through a Contractor-of-Record model where individual hiring is the better fit, and we work alongside foreign tax advisors to make sure the broader picture, including permanent establishment risk in India, is considered before any structural decision is made.