Input tax credit on dollar invoices from foreign tools

If you paid 18% IGST under reverse charge on a foreign tool's invoice, you can usually claim the same amount as input tax credit in Table 4(A)(2) of the same GSTR-3B. You need a self-invoice, proof of payment, and business use.

Two terms first

RCM (reverse charge mechanism): you, the buyer, pay the GST to the government instead of the seller. This applies when a GST-registered Indian company buys services from a vendor abroad that does not charge Indian GST. See GST on foreign SaaS.
ITC (input tax credit): GST you paid on business purchases that you can set off against GST you owe on your own sales.

With RCM on imported services, you pay the IGST in cash, then claim it back as ITC. You can use that credit to pay GST on your own sales. Done right, the net tax cost is nil.

Conditions for the credit

You are GST-registered under the regular scheme (not the composition scheme).
You use the tool for your business, and for taxable sales.
You have actually paid the reverse charge IGST in cash through GSTR-3B.
You hold a valid document. For RCM this is your own self-invoice.
You claim within the time limit: by 30 November after the end of the financial year, or the date you file your annual return, if earlier.

Two things work differently from domestic purchases. Imported services do not appear in GSTR-2B, because the foreign vendor files no GST return in India. That is normal. Also, the rule that you must pay the supplier within 180 days does not apply to reverse charge supplies.

Which GSTR-3B table

Pay the tax in Table 3.1(d). Claim the credit in Table 4(A)(2) "Import of services", usually in the same return. Do not use 4(A)(3); that is for domestic reverse charge purchases. The portal's RCM Liability/ITC Statement checks that your credit in 4(A)(2) and 4(A)(3) does not exceed the RCM tax you paid.

Self-invoice and payment voucher

The foreign vendor's invoice is not a GST tax invoice. So under RCM you create your own documents:

Self-invoice (section 31(3)(f), CGST Act). Since 1 November 2024, Rule 47A says to issue it within 30 days of receiving the service. Include your GSTIN, the vendor's name and address, a description, the value in rupees, 18% IGST, and a note that tax is payable on reverse charge. CBIC Circular 210/04/2024 refers to this self-invoice for imports of services from related parties abroad. Most CAs apply it to all foreign vendors.
Payment voucher (section 31(3)(g)), issued when you pay the vendor.

Records to keep

The vendor's invoice or receipt (PDF), ideally showing your company name and address.
Your self-invoice and payment voucher.
Bank or card statement showing the debit.
The exchange rate you used, its source, and the date.
Your GST payment challan and the filed GSTR-3B.
A one-line note on what the tool is used for in the business.

Keep these for at least the period the GST law requires. Ask your CA for the current period.

Converting USD to INR

Rule 34(2) of the CGST Rules says to use the exchange rate under generally accepted accounting principles, on the date of the time of supply. For card payments this is usually the payment date. Many companies use the FBIL reference rate or their bank's rate for that day. Apply one method consistently.

Convert the vendor's invoice amount. Your card statement amount is higher because it includes the bank's markup and GST on that markup. That bank GST is a separate charge.

Worked example

Your company pays a $100 invoice for a hosted database on 5 March. Assume an example rate of ₹88.00 per dollar on that date.

Step	Amount
Invoice value: $100 × ₹88.00	₹8,800
IGST at 18% (pay in cash, Table 3.1(d), March return)	₹1,584
ITC claimed (Table 4(A)(2), March return)	₹1,584
Net GST cost if fully eligible	₹0

The catch is cash flow. You pay ₹1,584 from your cash ledger. The credit can only be used against your own GST liability. If you have few taxable sales yet, the credit can sit unused for a while.

When credit is blocked or reduced

Composition scheme: no ITC at all.
Exempt sales: if some of your sales are GST-exempt, you must reverse a share of the credit.
Personal or non-business use: no credit for that part.
Section 17(5) items: a list of blocked credits, such as food, club memberships and items for personal consumption. Normal software tools are rarely on it, but check with your CA.
Tax not paid, no self-invoice, or past the time limit: no credit.
Vendor charged GST under the simplified OIDAR registration: that GST does not reach your GSTR-2B, so credit is doubtful. Ask the vendor to bill against your GSTIN without GST.

Trouble paying the vendor in the first place? See paying OpenRouter and Neon from India.

One bill instead of many

Filvon Billing gives you 1 account, 1 bill and 1 GST invoice in rupees for your dev tools. You top up a wallet by UPI or NEFT, and the fee is 6% on what you spend. Get early access.

Sources

General information, not tax or legal advice. Check with your CA before filing.