Translation and language services are taxable at 18% where the supplier is registered and the recipient is in India. Translation and interpretation services are commonly classified under SAC 998395. The registration threshold is ₹20 lakh for a service provider, or ₹10 lakh in the special category states specified for services. The technical issues that matter in this sector are the treatment of per-word and per-project billing, the export qualification of foreign-language work for overseas clients, and the input tax credit position on CAT tools, software and subcontractor payments.
The Rate and the Scope of Language Services
The 18% rate applies to translation, interpretation, localization, transcription, proofreading, subtitling, dubbing and language training where these are commercial services. The rate does not change because the source or target language is Indian or foreign, or because the deliverable is a digital file. A translation agency supplying services to an Indian client charges CGST and SGST for intra-state supplies and IGST for inter-state supplies, depending on the location of the supplier and the recipient.
SAC classification should match the nature of the service. Translation and interpretation are grouped under SAC 998395; localization and transcription may fall within adjacent headings depending on the work. The invoice should describe the service consistently with the SAC used and with the unit of billing—per word, per page, per hour or per project.
Registration and Aggregate Turnover
Aggregate turnover is computed on an all-India, PAN-based basis and includes taxable, exempt and zero-rated supplies. Translation fees, interpretation fees, localization project income, transcription income and language training fees are aggregated. A language service provider that operates through a proprietorship and also receives income through a separate agency arrangement must determine whether the receipts belong to the same taxable person or to distinct persons.
Voluntary registration below the threshold can be relevant where the provider incurs significant GST on CAT tools, software, hardware or subcontractor services and expects taxable output supplies. But the compliance cost of registration—return filing, invoicing, reconciliation—should be weighed against the credit benefit.
Export of Translation Services
Translation work for foreign clients can qualify as export of services, but the five conditions under Section 2(6) of the IGST Act must be satisfied cumulatively. The supplier must be in India; the recipient must be outside India; the place of supply must be outside India; payment must be received in convertible foreign exchange or permitted Indian rupees; and the supplier and recipient must not be establishments of the same person.
A foreign client paying in foreign currency satisfies only the payment condition. The place-of-supply analysis for translation services is generally straightforward where the service is delivered remotely to a recipient outside India, but the establishment condition requires attention where the foreign recipient is an affiliate or branch of the Indian provider. If the recipient is merely an establishment of the same person, the supply is not an export.
Where the conditions are met, the supply is zero-rated under Section 16 of the IGST Act. The provider may export under a LUT in Form GST RFD-11 without payment of IGST and claim refund of eligible accumulated ITC, or pay IGST and claim refund. Export invoices must be reported with zero-rated treatment, and foreign exchange realisation should be documented through bank advice or FIRC.
Input Tax Credit on CAT Tools, Software and Subcontractors
Translation and localization providers incur GST on CAT tools, translation management systems, software subscriptions, hardware and freelance translator payments. The eligibility of credit depends on whether the input is used in the course or furtherance of business, whether the invoice is in the name of the registered person, and whether the input falls within a blocked category.
Software subscriptions and cloud-based translation tools used for client work are input services and are ordinarily eligible where the invoice is in the registered person’s name. Hardware used for translation work is ordinarily eligible, subject to the general conditions and exclusions. Subcontractor payments require care: where the subcontractor is registered, a tax invoice with the correct GSTIN supports the credit; where the subcontractor is unregistered and the payment is below the threshold, the input does not carry creditable GST.
Where the provider uses a proprietary CAT tool or internally developed software, the credit position on related hardware and services must be analysed on the facts. The provider should maintain a vendor register with GSTIN status and invoice references, because translation engagements often involve multiple freelance vendors and the reconciliation burden is material.
What the Language Service Provider Should Control
The provider’s GST position turns on three variables: whether the service is correctly classified under SAC 998395 or an adjacent heading; whether foreign-client work satisfies all five export conditions; and whether the ITC documentation across software, hardware and subcontractor inputs is complete. The provider who controls these variables is better placed than one who treats foreign income as automatically exempt and assumes that every software subscription is creditable.
Call to Action: We advise translation agencies, language service providers and localization businesses on GST registration, export documentation, SAC classification and ITC reviews. Contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.