Buyer Guides · 6 MIN
How to pay an Indian software vendor from abroad
A practical guide for foreign buyers on paying an Indian software vendor: invoice checks, currency, bank transfer details, RBI purpose code P0802, taxes and milestones.
To pay an Indian software vendor from abroad, check that the invoice shows the vendor's GSTIN and an export-under-LUT declaration with no Indian GST, send a bank transfer from your company account in the invoice currency, quote the invoice number, and ask the vendor for its bank details in writing. The vendor's bank then issues proof of the inward remittance.
- A valid export invoice to a foreign client carries no Indian GST when the vendor holds a LUT.
- Pay from your company's own account and quote the invoice number, because third-party payments complicate the vendor's export proof.
- Indian banks record an RBI purpose code on inward software payments, which is P0802, described by the RBI as "Software implementation/consultancy (other than those covered in SOFTEX form)".
- Confirm bank details by voice call to a known contact, since changed-bank-detail emails are a common fraud pattern.
- Your own country may require you to self-assess VAT under reverse charge or collect a tax form from the vendor.
- Nactore is an AI-native technology and growth company in Mumbai that invoices overseas clients as exports and supplies the paperwork their finance teams need.
What should an Indian vendor's invoice look like?
Before you pay, read the invoice with a finance lens. A clean export invoice contains these elements.
| Field | What to check |
|---|---|
| Vendor legal name and GSTIN | Matches the contract and the GST portal record |
| Your legal name and address | Correct entity, in your country |
| Service description and SAC code | Matches the statement of work |
| GST treatment | A declaration of export without payment of IGST under LUT, and no GST line |
| Currency and amount | The agreed foreign currency, not a surprise conversion |
| Bank details | Account name matches the vendor's legal name |
If the invoice charges 18 percent GST to an overseas client, ask why. Our guide to India's GST LUT for export of services explains when it should and should not be there.
Which payment routes can you use?
You usually have three options. Each has trade-offs, and fees vary, so compare current quotes.
- Bank wire (SWIFT). The standard route. Your bank sends the money to the vendor's Indian bank. It is traceable, widely accepted and fine for larger payments, but intermediary banks can deduct fees.
- Specialist payment platforms. Several providers offer local-currency collection and transfer to India with clearer exchange rates. Check that the provider is licensed in your country and that the vendor's bank accepts it as an authorized flow.
- Card or marketplace platforms. Fine for small, one-off items, but poor for project billing because of fees and limits.
Whichever route you choose, state in the contract who bears bank charges. A common clause is that you pay in full and the vendor absorbs receiving-side fees, or that fees are shared. Decide before the first payment.
What happens on the Indian side when the money arrives?
The money lands in an Indian bank that the Reserve Bank of India authorizes to deal in foreign exchange, called an authorized dealer bank. The bank reports the inflow with a purpose code. The RBI's list of receipt purpose codes describes P0802 as "Software implementation/consultancy (other than those covered in SOFTEX form)".
The bank then gives the vendor a record of the inward remittance, which the vendor uses as evidence that it received foreign exchange. That evidence supports its GST export treatment and its income tax records. You do not need to do anything on this side, but you can help by:
- paying from your company's own bank account, not from a personal or third-party account
- writing the invoice number in the transfer reference
- paying the full invoice amount in the invoice currency
- avoiding splitting a single invoice across several senders
Payment from an unrelated third party may be refused or delayed, because the bank cannot link it to the export invoice.
How do you protect yourself from payment fraud?
Business email compromise is common in cross-border invoicing. The pattern is an email that looks like it comes from your vendor and announces new bank details.
- Verify by voice. Call a person you already know at the vendor, on a number you already hold, before changing any bank detail.
- Check the name. The beneficiary name should match the legal entity on the contract.
- Use a first small payment. For a new vendor, confirm receipt of a small amount before sending the large milestone.
- Restrict who can change payee details. Require two approvers in your own finance process.
How should payments be structured?
Tie each payment to something you can run and test. The structure below works for most engagements.
- Initial payment. A modest advance at signing, tied to kickoff.
- Milestone payments. Each linked to working software accepted against agreed criteria.
- Final holdback. Released on handover of code, documentation and credentials.
- Support. Billed monthly in arrears against a defined scope.
Keep a payment due date that gives your finance team time. Under GST rule 96A, a vendor exporting under LUT must pay the tax itself if payment is not received within one year of the invoice, or the longer period allowed under India's foreign exchange law, so keep invoices from aging. For more on structure, see fixed-scope vs time and materials.
Add a clause that says all invoices will be paid from the buyer's own account in the invoice currency, quoting the invoice number. It speeds up the vendor's bank checks and your own audit trail.
What are your own tax obligations?
Paying a foreign vendor may trigger obligations in your country. Examples to raise with your accountant include the following.
- UK and EU. B2B services bought from outside the country are typically subject to VAT reverse charge, which you self-assess.
- UAE. A UAE business may need to account for VAT on imported services under the reverse-charge rules.
- US. Collect a Form W-8BEN-E from the vendor so you can document that no US withholding applies to fees for services performed in India. See W-8BEN-E when paying foreign software vendors.
Rules vary and change. This is general information, not tax advice.
Frequently asked questions
Can I pay an Indian vendor in my own currency?
Yes, in most cases. Foreign currency payment is the normal route for exports. Agree the currency in the contract so no one is surprised by exchange rates.
Will the vendor receive less because of fees?
Possibly. Intermediary banks and exchange spreads can reduce the received amount. Agree who bears them, and compare routes before large payments.
Do I have to pay Indian tax?
For a qualifying export of services under LUT, you pay no Indian GST. Your vendor pays its own Indian income tax. Check your own country's rules on withholding and reverse charge.
How do I know the vendor received the money?
Ask for a payment receipt and confirmation from the vendor. The vendor's bank keeps the formal record of the inward remittance.
Make payment boring
Good payment practice is uneventful. Correct invoices, your own account, the right reference, verified bank details and payment tied to delivery.
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