SaaS Business Setup in India: A Complete Guide
India has emerged as a global SaaS powerhouse, with companies like Zoho, Freshworks, and Druva leading the way. The country's combination of technical talent, English proficiency, cost advantages, and supportive government policies makes it an ideal location for building and scaling SaaS businesses.
This comprehensive guide covers everything you need to know about setting up a SaaS business in India, from company registration and STPI benefits to GST compliance on software exports, foreign revenue handling, and scaling strategies for global markets.
Why India for SaaS?
Talent Advantage
India produces 1.5+ million engineering graduates annually. Strong pool of developers, product managers, and designers at competitive costs compared to US/Europe.
Tax Benefits
STPI offers 100% tax exemption on export profits until March 2031. SEZ benefits available. Startup India provides additional tax holidays.
Infrastructure
World-class cloud infrastructure, high-speed internet in major cities, co-working spaces, and vibrant startup ecosystem with strong investor network.
Time Zone
Strategic time zone advantage for serving both US and APAC markets. 24-hour development cycles possible with distributed teams.
Company Structure for SaaS
| Structure | Best For | Key Benefits |
|---|---|---|
| Private Limited | Funded SaaS, enterprise products, scale-ups | Easy funding, ESOPs, high credibility, limited liability |
| LLP | Consulting-based SaaS, small agencies | Lower compliance, tax efficiency, partner flexibility |
| One Person Company | Solo founders, micro-SaaS | Single owner, limited liability, easy to convert later |
Step-by-Step Registration Process
Business Planning
Define your SaaS product, target market, pricing model, and revenue projections. Choose between B2B, B2C, or API-based models. Plan your technology stack and development roadmap.
Company Registration (SPICe+)
Register through SPICe+ on MCA portal. Obtain DIN, DSC, and complete incorporation. PAN and TAN are auto-generated. Takes 10-15 days with proper documentation.
GST Registration and LUT
Register for GST on gst.gov.in. File Letter of Undertaking (LUT) for exports - this allows zero-rated supply without paying IGST. Annual LUT filing required by March 31.
STPI Registration
Apply at stpi.in with project report and company documents. Benefits include 100% tax exemption on export profits, duty-free imports, and single-window clearance. Processing takes 2-4 weeks.
Banking and Payments
Open current account with AD Category-I bank. Set up payment gateway (Stripe, Razorpay, PayPal) for international payments. Implement subscription billing and invoicing systems.
Legal Documentation
Draft Terms of Service, Privacy Policy, SLA, and Data Processing Agreements. Ensure GDPR/CCPA compliance if serving international customers. Protect IP through trademarks and copyrights.
STPI vs SEZ: Which to Choose?
| Factor | STPI | SEZ |
|---|---|---|
| Tax Holiday | 100% till March 2031 | 100% for 15 years |
| Location | Anywhere in India | Designated SEZ areas only |
| Domestic Sales | Up to 10% allowed | DCTT applies |
| Compliance | Moderate | Higher |
| Best For | Pure SaaS, flexibility needed | Large infra needs, certainty |
Recommendation: Most SaaS startups should choose STPI due to location flexibility and ability to serve domestic customers (up to 10%).
GST on Software Exports
Zero-Rated Exports (LUT Route)
Software exports are classified as export of services and are zero-rated under GST. File LUT to export without paying IGST and claim input tax credit.
- • File Form RFD-11 annually by March 31
- • No GST charged on foreign invoices
- • Input tax credit can be claimed
- • FIRC required as proof of export
Place of Supply Rules
For B2B SaaS: Location of recipient determines place of supply. For B2C: Location of service provider, but still zero-rated as export when payment received in foreign currency.
Foreign Revenue Compliance
Key Requirements:
- • AD Bank Account: Must receive foreign revenue through AD Category-I bank
- • FIRA: Obtain Foreign Inward Remittance Advice for every receipt
- • FEMA Compliance: Report foreign receipts as per FEMA guidelines
- • Softex Form: File monthly STPI returns for export proceeds
- • Export Documentation: Maintain invoices, contracts, and payment proofs
Payment Gateways:
- • Stripe: Best for SaaS subscriptions (2% + ₹3)
- • Razorpay: Good for Indian startups (3% international)
- • PayPal: Essential for global reach (4.4% + fixed)
- • Paddle: Merchant of record option (5% + 50¢)
Tax Benefits for SaaS Startups
STPI Benefits
- ✓ 100% tax exemption on export profits
- ✓ No MAT on export income
- ✓ Duty-free import of equipment
- ✓ Extended till March 31, 2031
Startup India (80-IAC)
- ✓ 3-year tax holiday
- ✓ Any 3 consecutive years of 10
- ✓ Turnover < ₹100 crore
- ✓ DPIIT recognition required
R&D Benefits (35(2AB))
- ✓ 150% deduction on R&D expenses
- ✓ DSIR approval required
- ✓ In-house R&D facility
- ✓ Significant tax savings
ESOP Benefits
- ✓ Tax deferred to earlier of exercise/sale
- ✓ Or 5 years from grant date
- ✓ Helps attract talent
- ✓ Cash flow benefit for employees
Key Success Factors for Indian SaaS
Early Stage
- ✓ Choose right business structure
- ✓ Register under STPI immediately
- ✓ Set up proper accounting
- ✓ Get Startup India recognition
Scaling
- ✓ Optimize tax through STPI
- ✓ Maintain FEMA compliance
- ✓ Build strong tech team
- ✓ Focus on global markets