Software, IT and SaaS in India
Software, IT and SaaS take 100% FDI automatically in India - so the real decisions are the entity, the GST/transfer-pricing footprint, and who owns the code.
Software, IT services and SaaS take 100% foreign ownership on the automatic route - so the entry question is rarely "can we?" It is which entity, which tax footprint, and who owns the code.
A foreign software, IT or SaaS business comes to India for one of two reasons, and the structure turns on which. To sell to India is to put a revenue engine on the ground - an Indian company that signs Indian customers, invoices in rupees, and carries a local team. To build in India is to stand up a development or delivery centre that serves the parent's global customers, not the Indian market. Both are 100% foreign-owned on the same permission, and many investors do both inside one company. Because ownership is settled, the decisions that actually shape the entry are three: the wrapper (a private limited company or an LLP), the tax footprint (the old IT tax holidays are closed, so the value now sits in GST treatment and transfer pricing, not a tax-free zone), and who owns the code that gets written.
The first thing to settle is which kind of entrant you are - a product or SaaS company that owns its product and carries market risk, an IT or services firm selling and delivering from India, or a captive that builds for its parent and invoices cost-plus. The first two are this page; the third is a Global Capability Centre, covered on its own hub.
At a glance
- Software, IT, ITeS and SaaS take 100% FDI under the automatic route - no government approval, only post-investment reporting to the RBI. This is the route for unregulated software activity; a regulated overlay - fintech and payments, telecom, an e-commerce marketplace/inventory model, insurance distribution or data-centre/cloud activity - can change the route or add a licence.
- The structural choice is the wrapper: a private limited company for anyone who will raise capital or grant employee equity; an LLP only for a lean, self-funded services practice (an FDI-funded LLP cannot issue ESOPs or priced equity, and can invest downstream only in sectors that are 100% automatic with no FDI-linked conditions).
- The old IT tax holidays are closed to new entrants - the STPI income-tax exemption ended in 2011 and the SEZ holiday is shut to units starting on or after 1 April 2020 - so a new software company is an ordinary taxpayer, and the tax that actually matters is GST zero-rating on exports and transfer pricing on any captive build.
- Exports of software and SaaS are zero-rated for GST; filing a Letter of Undertaking lets you export without paying IGST upfront and reclaim the input credit - a real working-capital saving for a service exporter.
- If India writes the code, who owns the IP is a decision, not a default - without a written assignment, ownership can vest in the Indian entity, and that assignment chain is what a buyer or investor diligences on an exit.
- A development centre that builds only for its parent on a cost-plus basis is a captive, a GCC - different on tax, IP and transfer pricing; see the splitter below.
Why India for software companies
India is among the largest destinations for software and IT foreign investment by number of projects, and the second-largest sector within India's own inbound investment by value, so an entrant joins a counted, visible flow rather than pioneering. It is also a deep base: India's software and IT-services industry runs near US$280 billion in revenue, with exports above US$220 billion in FY2025 and on course to cross US$300 billion - proven talent and delivery, not frontier. By project count, India has been the leading destination globally for greenfield investment in software and IT services, which was the single largest sector of global greenfield activity over 2019-2023 (GlobalData / Investment Monitor, July 2024); across all sectors, India ranked fourth in the world by number of greenfield projects in 2024 (UNCTAD World Investment Report, June 2025). By value, computer software and hardware - a category that bundles hardware - drew about 16% of India's FDI equity in FY2024-25, second only to services, within a record US$81 billion of total inflows (DPIIT, May 2025). The investment concentrates where the talent is - Maharashtra, Karnataka and Delhi together took roughly two-thirds of that year's equity. For a foreign company the figures settle the "whether"; the work is in the "how."
Which route are you taking?
The FDI route is the same across every option - up to 100% on the automatic route - so what changes is the vehicle and the issue that actually bites.
Every row reports up to the same structuring and FEMA pages for the mechanics; the table is for shape, not how-to.
| Route | Typical investor | Key legal issue |
|---|---|---|
| Wholly-owned subsidiary - sell to India | Product or SaaS vendor signing Indian customers | Taxable presence and GST registration once you contract and collect in India; export zero-rating applies only to the export leg |
| Wholly-owned subsidiary - build in India | Engineering-led firm building for global customers | Transfer pricing (an arm's-length cost-plus markup) and IP assignment - the route that quietly becomes a GCC |
| Private limited for fundraising / ESOPs | VC-backed SaaS, or a parent putting Indian staff on equity | Only a company can issue ESOPs and priced equity; the ESOP perquisite-tax deferral is limited to certified startups |
| LLP | Bootstrapped services or consulting practice, no equity raise | An FDI-funded LLP cannot grant ESOPs or make downstream investments - a hard ceiling on anything that wants to scale |
| Branch / project / liaison office | A firm testing the market or executing one Indian contract | RBI approval, not the automatic route; a liaison office cannot earn revenue - usually a way-station, not an endpoint |
| IT-SEZ or STPI unit | Export-only IT / ITeS operation | The income-tax holiday is gone; STPI and SEZ now give customs and operational benefits, not tax-free profit |
| Acquisition of an Indian software company | A buyer wanting team, product and revenue at once | FEMA pricing floors, deferred-consideration limits, and IP, employment and ESOP-pool diligence |
100% foreign-owned - so the wrapper is the decision
Software, IT, software products, SaaS and IT-enabled services sit among the activities India opens to 100% foreign ownership on the automatic route: no government approval, no sector cap, no minimum capitalisation - only post-investment reporting to the RBI (Form FC-GPR on a fresh issue, FC-TRS on a transfer). One qualifier matters: this is the route for unregulated software activity. A regulated overlay changes the picture - fintech and payments, telecom, an e-commerce marketplace or inventory model, insurance distribution, or data-centre and cloud activity each carry their own regime or licence - so the test is the actual activity, not the "software" label.
The choice that matters is the entity. A private limited company is the default for almost every foreign software investor: it can take FDI with only post-facto filing, issue ESOPs, raise priced equity from investors, and make downstream investments. An LLP can also take FDI on the automatic route, but an FDI-funded LLP cannot issue ESOPs or priced equity like a company and is a poor fit for fundraising; it may make downstream investment only where the downstream sector is 100% automatic with no FDI-linked performance conditions - so it remains a constrained wrapper for a scaling technology group. Everything else is a company. The incorporation steps, the FC-GPR filing and the FEMA pricing rules are set out on our India business-setup and FEMA pages; this page is about which route fits, not how to file it.
Two standing points apply even though software is asset-light. First, FDI from an entity of, or beneficially owned in, a country sharing a land border with India needs prior government approval regardless of sector - so this is a cap-table question, screened before the route is chosen, not only an FDI form. Second, the FEMA restriction on dealing in land is largely moot for a leased office, but it re-surfaces if the company acquires freehold land for a captive campus or data centre. Both are flagged here and worked on the FEMA page.
The tax that matters is GST and transfer pricing - not a holiday
Foreign founders still arrive expecting an Indian "software tax holiday." For a new entrant there isn't one. The STPI income-tax exemption ended on 31 March 2011, and the SEZ income-tax holiday is closed to any unit that began operating on or after 1 April 2020; the STPI and SEZ schemes continue, but for their customs and operational benefits, not tax-free profit. A new software company is therefore an ordinary corporate taxpayer, usually electing the concessional regime - broadly a 22% headline rate, near 25% once surcharge and cess are added, to be confirmed for the year.
The tax value is captured in two other places. The first is GST: exports of software and SaaS are a zero-rated supply - taxed at 0% while still allowing recovery of input tax - provided the standard export conditions are met, including payment in foreign currency. Most exporters file a Letter of Undertaking at the start of the year, which lets them export without paying IGST upfront and then reclaim accumulated input credit, preserving working capital; the refund lag is itself a real cash-flow item for a CFO. One watch-point: a captive billing its own foreign parent can fail the "export" test for some supplies and be treated as a related-party service - the point where GST and transfer pricing meet. A successor framework to the SEZ Act, drafted in 2022 as the DESH Bill and since signalled as an amendment to the SEZ Act, has not been enacted; treat any future hub benefit as proposed, not available, and plan on current law.
Who owns the code - and the cost-plus on a captive build
For a company that writes software in India, the most consequential and least-advised decision is intellectual property. Under Indian law, absent a written assignment, ownership of code can vest in the Indian entity that created it, not automatically in the foreign parent - so a build-in-India structure needs explicit IP-assignment or work-for-hire agreements routing ownership to the intended owner, and clean inbound licences where the Indian team uses the parent's IP. That assignment chain is exactly what a foreign buyer or investor diligences on an exit. Assigning IP back out of India is itself a transfer-pricing and valuation event, scrutinised if it is done "for free."
A captive that develops for its parent must be paid an arm's-length markup, and that number is not abstract tax theory - it sets the budget of the India centre. India offers an optional Safe Harbour to reduce dispute risk. The Finance Act 2026 consolidated software development, IT-enabled services, KPO and software-related contract research-and-development into a single Information Technology Services category at a uniform margin of about 15.5% - approved through an automated, rule-driven process under the draft 2026 rules - while the Budget 2026-27 raised the eligibility threshold sharply, to Rs 2,000 crore (CBDT, 2026). The election is optional, and the implementing rules and year-by-year eligibility should be confirmed for the transaction concerned.
When does a foreign software business actually need an Indian entity?
Many groups serve Indian customers or hire Indian talent for a while before they incorporate. The trigger to set up an Indian company is usually one of these:
The common path is contractors or an employer-of-record first, then a subsidiary once one of these bites - the point at which the wrapper, GST and IP decisions on this page have to be made deliberately.
- it signs Indian customers, or has to invoice and collect in rupees;
- it hires an Indian engineering or sales team on its own books, rather than using loose contractors or an employer-of-record;
- it needs GST registration, input credits or an export Letter of Undertaking;
- an Indian enterprise customer requires a local contracting party;
- IP, ESOPs, open-source diligence or the acquisition of an Indian team or product is in play; or
- the group wants a UAE or Singapore parent over an Indian development or delivery subsidiary.
Software company or captive GCC? The splitter
One distinction decides which page you need. If you own a product and carry market risk - India is part of your profit-and-loss, whether you sell here or abroad - you are a software or SaaS company, and this is the right page. If the parent owns everything and the Indian entity simply invoices cost-plus to deliver back to the group, that is a captive - a Global Capability Centre - and the operating model, the transfer pricing and the tax sit differently. The two look identical at incorporation and diverge completely afterwards; our Global Capability Centres hub covers the captive route in full.
How a foreign software company enters India
The vehicle is almost always a private limited subsidiary - wholly-owned to sell into India or to build for the group, or a joint venture where a local partner is needed. The entry then settles the tax footprint (the concessional corporate regime, the GST registration and the export Letter of Undertaking), the IP position (assignment and inbound licences where India writes code), and, for a captive build, the transfer-pricing markup. Groups raising capital place the ESOP pool and the investor instruments at the company; groups running both India and the Gulf often hold the structure above India through a UAE or Singapore vehicle, which is a treaty-and-substance decision in its own right. The structure follows what the business is - a market entry, a build, or both.
Legal workstreams for a software, IT or SaaS entry
A software, IT or SaaS entry usually brings these workstreams together:
- choosing the wrapper - private limited company or LLP - and incorporating it, with the FDI route and FC-GPR reporting;
- the GST registration and the export Letter of Undertaking for zero-rated SaaS and software exports;
- IP ownership - assignment and work-for-hire agreements, and inbound licences where the Indian team uses the parent's IP;
- transfer pricing on a captive build, and the Safe Harbour election where it fits;
- the ESOP plan and its tax treatment for the Indian team, and the priced-equity instruments for investors;
- data-protection mapping under the Digital Personal Data Protection Act as its rules take effect;
- the holding structure above India - often a UAE or Singapore vehicle - and its treaty and substance position; and
- the Press Note 3 screen where the ownership chain touches a land-border country.
The India-UAE corridor
A software or SaaS group based in the Gulf, or weighing both markets, usually runs them as connected but separate decisions. The UAE answers the founder's residence, the billing entity and the IP holding - no personal income tax, and a Golden Visa for founders and engineers. India answers the talent and the build. A common pattern places the IP and the billing company in the UAE and the development team in India under an intercompany agreement. That works only on three conditions: it satisfies transfer pricing and genuine substance on both sides; the UAE entity is actually run from the UAE, not from India; and the UAE's own 9% corporate tax and qualifying-free-zone conditions are met - no personal income tax does not mean no company-level tax. The UAE software entry is covered on its own page; where a group runs both ends, the holding and the cross-border flows are designed together.
Where this goes wrong
- Treating "100% automatic" as the whole answer, when the wrapper, the tax footprint and the IP position are where the value and the risk sit - and when a regulated overlay may change the route entirely.
- Expecting an STPI or SEZ tax holiday that closed years ago, and pricing the business on a tax-free profit that no longer exists.
- Letting IP in India-written code vest in the Indian entity by default, with no assignment or work-for-hire agreement.
- Running a captive build without an arm's-length transfer-pricing markup, or assuming the export zero-rating covers parent-billing that it does not.
- Choosing an LLP for a business that will later want to grant ESOPs or raise priced equity, and finding the structure cannot.
- Leaving the holding, treaty and Press Note 3 position until after the entity is operating.
How ATB Corporate helps
ATB advises foreign software, IT and SaaS companies entering India, starting from what the business is - a market entry, a build, or both - and the wrapper that fits it. We work the entity and the FDI route, the GST and export-LUT position, the IP assignment and inbound licences, the transfer pricing on a captive build, the ESOP and investor instruments, and the holding structure above India, including the India-UAE corridor where a group runs both ends. We keep the captive question explicit, so a product company is not built as a cost centre and a captive is not built as a company. The value is in aligning the wrapper, the tax footprint and the IP with what the business actually does.
Software, IT & SaaS — Answered
Yes - software, IT, SaaS and IT-enabled services are open to 100% foreign ownership on the automatic route, with no government approval and only post-investment reporting to the RBI. That route is for unregulated software activity; a regulated overlay (fintech, telecom, e-commerce inventory, insurance) can change it.
A private limited company for almost any case that will raise capital, grant ESOPs or scale - it alone can issue employee equity and priced investment. An FDI-funded LLP cannot issue ESOPs or priced equity and can make downstream investment only in sectors that are 100% automatic with no FDI-linked conditions, so it suits only a lean, self-funded services practice.
No, not at first - many groups start with contractors or an employer-of-record, so an Indian company is not initially required. You generally need your own Indian entity once you want employees on your own books with ESOPs, direct control and clean IP assignment, or once GST registration, local invoicing or an acquisition is involved. The employer-of-record-to-subsidiary conversion is a common market-entry trigger.
No - the STPI income-tax exemption ended on 31 March 2011 and the SEZ holiday is closed to units that began on or after 1 April 2020. A new software company is taxed as an ordinary corporate; the schemes now give customs and operational benefits, not tax-free profit.
Exports of services are zero-rated - 0% GST with input-tax recovery - when the export conditions are met, including payment in foreign currency. Most exporters file a Letter of Undertaking to export without paying IGST upfront and reclaim input credit; Indian sales are taxed normally.
You can invoice some Indian customers cross-border, but it has limits: many Indian enterprises require a local contracting party, GST applies on the import of services (often by reverse charge in the customer's hands), and a sustained local presence can create a taxable presence in India. Where India is a genuine revenue market, a local entity is usually cleaner than billing from offshore.
Not automatically the parent. Absent a written assignment, ownership of code can vest in the Indian entity, so you need IP-assignment or work-for-hire agreements; any later transfer to the parent is an arm's-length, valued transaction, and the assignment chain is diligenced on an exit.
Yes - a captive serving its parent must earn an arm's-length markup. India's optional Safe Harbour, consolidated under the Finance Act 2026 into a single Information Technology Services category at about a 15.5% margin with the eligibility threshold raised to Rs 2,000 crore (CBDT, March 2026), can reduce dispute risk; the election is optional, so confirm the current rules and eligibility for your year.
A company can grant ESOPs (an LLP cannot). They are taxed as a perquisite at exercise and as capital gains on sale; a deferral of the perquisite tax is limited to employees of startups that are both DPIIT-recognised and certified under the relevant section.
Yes - the Digital Personal Data Protection Act, 2023 is in force and its rules were notified in November 2025, with phased commencement; cross-border transfer follows a negative-list approach - permissive unless a sector regulator imposes localisation. Map consent and data obligations early.
They overlap but differ where it matters: if you own a product and carry market risk, you are a software company; if the parent owns everything and India invoices cost-plus, that is a captive GCC, with a different tax, IP and transfer-pricing footprint.
Yes, where the ownership chain touches a country sharing a land border with India. Press Note 2 of 2026 (issued 15 March 2026) eased the land-border rule: a land-border beneficial owner of 10% or less with no control now uses the automatic route with DPIIT reporting, while a larger or controlling land-border holding still needs prior government approval. Either way, an ownership chain that touches those countries is screened before the route is chosen.
For software and SaaS in India, the wrapper must match what the business is — a market entry, a captive build, or both — so the entity, transfer pricing and IP align.
Licensing, approvals and any tax treatment are decided by the authorities on the facts. Talk to our team when you are ready.
Get in touch