Short answer: IT and software companies in Kochi need to get five things right — GST on export of services, STPI or SEZ compliance, transfer pricing where there is a foreign parent or client group, payroll and ESOP taxation, and investor-ready monthly reporting. Getting these right early protects refunds, keeps tax incentives intact and makes funding and due diligence much smoother.
Kochi has become one of India's fastest-growing technology hubs. Infopark in Kakkanad, SmartCity Kochi and a large startup community supported by Kerala Startup Mission now host everything from two-person product startups to development centres of global companies. A. George & Associates, Chartered Accountants, has worked with businesses in Ernakulam since 1987, and IT companies are now a large part of our practice. This guide sets out the compliance areas we see IT clients struggle with most.
1. GST on export of software and IT services
Most Kochi IT companies earn a large share of revenue from clients outside India. Export of services is treated as a zero-rated supply under GST, but only if the conditions are met — the client is outside India, the service is provided from India, payment is received in convertible foreign exchange (or INR where permitted by RBI), and the supplier and client are not merely establishments of the same entity.
- File a Letter of Undertaking (LUT) at the start of each financial year so you can export without paying IGST.
- Keep foreign inward remittance records (bank FIRCs or advices) matched to each invoice.
- Claim refunds of unutilised input tax credit on time — refund claims are time-bound, and delays are one of the most common ways IT companies lose money.
- Check intermediary-service risk: if you arrange services between a foreign client and another supplier instead of providing them yourself, export treatment may not apply.
Read more: GST refund strategies for businesses in Kochi and our taxation services.
2. STPI and SEZ units at Infopark and SmartCity
Many Kochi IT companies operate as STPI units or from SEZ campuses. These schemes come with their own registrations, periodic reporting and conditions on how revenue is earned and recorded. SEZ units in particular must track the period for which tax benefits apply and meet net foreign exchange and reporting obligations.
- Keep STPI/SEZ approvals, renewals and periodic returns on a compliance calendar.
- Make sure revenue and costs are correctly attributed to the approved unit, especially if the company also runs non-SEZ operations.
- Review tax holiday status before restructuring, moving premises or merging entities — the wrong sequence can cost the benefit.
See our SEZ, STPI and EOU services.
3. Transfer pricing for subsidiaries and captive centres
A Kochi company that is a subsidiary of a US, UK, Middle Eastern or Singapore parent, or that bills group companies, will usually be subject to transfer pricing rules. Prices charged to related parties must be at arm's length and supported by documentation and an accountant's report filed with the tax return.
- Agree a clear inter-company service agreement and a pricing method (often cost plus a mark-up) before the year starts.
- Benchmark the mark-up against comparable independent companies and keep the study on file.
- Reconcile what the parent records with what the Indian entity books and reports — mismatches attract questions in assessments.
Our articles on setting up or acquiring a US subsidiary in India and subsidiary audit services cover this in more depth.
4. Payroll, ESOPs and employee costs
People are the largest cost for any IT company. Payroll errors create TDS defaults, interest and notices for both the company and employees.
- Deduct TDS on salaries correctly, including the value of perquisites, and file quarterly returns on time.
- ESOPs create a tax point for employees when shares are allotted and again on sale. Plan the valuation and communicate the tax impact to employees before granting.
- Keep PF, ESI and professional tax registrations aligned with headcount as the team grows.
5. Audits, controls and investor-ready numbers
Every company needs an annual statutory audit, and many IT companies also need a tax audit. Beyond compliance, investors and acquirers expect clean monthly numbers, revenue recognised correctly on fixed-price and time-and-material contracts, and controls over billing and collections.
- Close books monthly and reconcile bank, receivables and GST every month — not at year end.
- Recognise revenue on milestone and subscription contracts consistently and document the policy.
- Prepare a data room early if you plan to raise funds or sell: cap table, contracts, tax filings and audited accounts.
See our audit and assurance services for Kochi and Kerala.
6. When an IT company needs a virtual CFO
Growing IT companies often outgrow a bookkeeper long before they can justify a full-time CFO. A virtual CFO fills that gap with cash flow forecasting, pricing and project profitability, monthly MIS for founders and investors, and preparation for bank and investor meetings — at a fraction of the cost.
Learn more about our virtual CFO services in Kochi, Ernakulam and Kerala.
Compliance checklist for Kochi IT companies
| Area | What to check |
|---|---|
| GST | LUT filed for the year; export invoices matched to foreign remittances; refund claims filed within time |
| STPI / SEZ | Approvals valid; periodic returns filed; revenue attributed to the approved unit |
| Transfer pricing | Inter-company agreement in place; benchmarking study; accountant's report filed |
| Payroll | TDS on salaries and perquisites; quarterly returns; PF, ESI and professional tax |
| ESOPs | Valuation at grant and allotment; employee tax impact explained |
| Company law | Board meetings, annual filings and statutory registers up to date |
| Reporting | Monthly close; revenue recognition policy; investor MIS |
Frequently asked questions
Is GST payable on software services exported from Kochi?
Exports of services that meet the GST conditions are zero-rated. With an LUT in place, no IGST is paid on the export, and input tax credit on related costs can be claimed as a refund.
Do Infopark companies need a different type of audit?
The statutory and tax audits are the same as for any company, but SEZ and STPI units also have scheme-specific reporting and conditions that the auditor and management need to track.
Our Kochi company is a subsidiary of a foreign company. Does transfer pricing apply?
Generally yes, if it has transactions with its parent or other group entities. The pricing must be at arm's length and documented, and an accountant's report is filed with the income tax return.
Can a small IT startup afford a virtual CFO?
Yes. Virtual CFO support is usually priced as a monthly retainer for a few days a month, and the scope can grow with the company.
Talk to us
A. George & Associates works with IT companies, startups and development centres at Infopark, SmartCity and across Kochi and Ernakulam, from our office at AGA Tower, Vyttila. To review your GST, STPI/SEZ, transfer pricing or reporting set-up, call 9744922222 or contact us.
This article is for general information and does not constitute professional advice. Tax and regulatory requirements change; please seek advice on your specific facts.