Service businesses bill using hourly, fixed-fee, retainer, milestone or usage models. In India, a GST-registered service provider must issue a tax invoice with the SAC code, place of supply and correct GST within thirty days of supply (forty-five days for banks, insurers and NBFCs). Track time or milestones carefully, agree terms in advance, and handle advances, TDS and reimbursements correctly.
A shop sells something you can hold. A service business sells time, expertise and outcomes, which makes billing harder: what exactly was delivered, when was it delivered, and how much is it worth? Get billing right and cash arrives predictably. Get it wrong and you spend more time chasing payment than doing the work.
This guide covers the main billing models for service businesses in India, the GST rules that apply to service invoices, a worked example, and the mistakes that hold service firms back.
What makes billing for services different?
- No physical delivery. There is no dispatch moment, so the "date of supply" needs care.
- Variable scope. Projects grow, clients add requests, and unbilled work leaks.
- Time-based value. For many firms, hours are inventory, and untracked hours are lost revenue.
- TDS. Many B2B service clients deduct income-tax TDS, so cash received is less than the invoice.
- Reimbursements. Travel, licences and third-party costs need clear treatment.
- Place of supply. For services, the place of supply rules differ from goods and decide whether you charge IGST or CGST+SGST.
Which billing model suits your service business?
| Model | How it works | Suits | Watch out for |
|---|---|---|---|
| Hourly or daily rate | Bill time spent × rate | Consultants, lawyers, developers | Needs accurate time logs; clients may cap hours |
| Fixed fee | One price for a defined deliverable | Website builds, audits, designs | Scope creep erodes margin |
| Retainer | Fixed monthly fee for ongoing access | Agencies, CAs, IT support | Define what is included and excluded |
| Milestone | Payments at project stages | Construction, software, events | Define completion criteria for each stage |
| Usage-based | Bill per unit consumed | Hosting, transport, testing labs | Clear metering and reports |
| Value-based | Price linked to outcome or value | Strategy, recruitment (fee on placement) | Agree how value is measured |
| Hybrid | Retainer plus overage, or fixed plus hourly | Most growing agencies | More complex invoices |
Many firms use two or three models depending on the client. Retainers and fixed fees are simplest to invoice; hourly billing is most precise but most admin-heavy. For retainers, recurring invoices save time.
What GST rules apply to service invoices?
Tax invoice particulars
A GST-registered service provider issues a tax invoice with the particulars in Rule 46 of the CGST Rules: your name, address and GSTIN, a consecutive serial number up to sixteen characters unique for the financial year, date, client details and GSTIN if registered, SAC code, description, taxable value, tax rate and amount, place of supply, reverse charge flag and signature. See mandatory fields on a GST invoice.
Time limit
Rule 47 requires a service invoice within thirty days from the date of supply. Insurers, banking companies and financial institutions including NBFCs have forty-five days. For continuous services under a contract with periodic payments, the invoice is linked to the payment due date in the contract.
SAC codes
Services are classified using SAC codes, which usually start with 99. Choosing the right code matters for the GST rate and for your returns. See what is a SAC code.
GST rate
Many business services are taxed at 18%, but rates vary by service. GST rates were restructured from 22 September 2025, mainly into 5% and 18% slabs, with 40% for specified items. Always confirm the current rate for your SAC code.
Place of supply
For most B2B services, the place of supply is the location of the registered recipient. If you are in Maharashtra and your client is registered in Karnataka, you charge IGST. See place of supply rules.
Advances
Many service firms take advances. When you receive an advance, issue a receipt voucher; the tax invoice follows when the service is supplied. Check how GST applies to advances for services in advance payment under GST.
How to set up service billing: step by step
- Define your offer. Write a service list with descriptions, SAC codes, GST rates and standard rates.
- Agree scope in writing. A quotation or engagement letter with deliverables, exclusions, timeline and payment terms.
- Decide the billing model for each client: hourly, fixed, retainer or milestone.
- Track the work. Use timesheets for hourly billing, milestone sign-offs for project billing.
- Set an invoicing calendar. For example, retainers on the 1st, hourly billing on the last working day, milestones on sign-off.
- Raise the invoice within the GST time limit, with SAC code and place of supply.
- Send with a payment link and the due date.
- Record TDS when the client pays net of TDS.
- Follow up on the due date. See invoice payment terms.
Worked example: a hybrid agency invoice
A Pune digital marketing agency, registered in Maharashtra, works for a registered client in Hyderabad, Telangana. The supply is inter-state, so IGST applies.
Agreement for October 2026:
- Monthly retainer: ₹60,000 (covers up to 40 hours)
- Extra hours: ₹1,800 per hour
- Hours worked in October: 47
- Approved stock-image purchase recovered at cost as part of the service: ₹4,500
- GST assumed at 18%
| Line | Calculation | Amount (₹) |
|---|---|---|
| Retainer, October 2026 | Fixed | 60,000.00 |
| Additional hours | (47 − 40) × 1,800 | 12,600.00 |
| Stock images used in campaign | At cost | 4,500.00 |
| Taxable value | 77,100.00 | |
| IGST @ 18% | 77,100 × 18% | 13,878.00 |
| Invoice total | 90,978.00 |
Here the stock images form part of the agency's service, so they are included in the taxable value. Whether a cost can be kept outside taxable value as a pure-agent reimbursement depends on specific conditions; confirm with your adviser.
TDS on payment: if the client deducts income-tax TDS at, say, 2% on the fee excluding GST, the deduction is 2% × ₹77,100 = ₹1,542. The client pays ₹90,978 − ₹1,542 = ₹89,436 and the agency records ₹1,542 as TDS receivable. The rate here is illustrative; the applicable section and rate depend on the nature of the service. See TDS on invoices.
What should a service invoice show beyond the legal fields?
| Element | Why it helps |
|---|---|
| Service period (e.g. 1–31 Oct 2026) | Shows what the invoice covers |
| Timesheet or hours summary | Makes hourly lines easy to approve |
| Milestone name and sign-off date | Links payment to agreed deliverables |
| PO or engagement reference | Speeds matching in the client's system |
| Due date and payment link | Reduces payment friction |
| Notes on what is out of scope | Prevents disputes about extra work |
How do you bill overseas clients for services?
Many Indian service firms work for clients abroad. A few billing points differ:
- Currency. You can invoice in the client's currency, such as USD or GBP, while recording the rupee value in your books. See multi-currency invoicing.
- Export of services. Where the supply qualifies as an export of services, it is zero-rated. Many exporters supply under a Letter of Undertaking (LUT) without paying IGST; others pay IGST and claim a refund. See export invoice under LUT.
- Invoice wording. An export invoice under LUT carries a declaration to that effect.
- Bank details. Give SWIFT details and the correct beneficiary name so payment is not held up.
Milestone billing for projects
For project work, a milestone schedule turns a large fee into predictable invoices:
| Milestone | Share of fee | Completion evidence |
|---|---|---|
| Project kick-off | 20% | Signed scope document |
| Design approval | 30% | Client's written approval |
| Delivery for testing | 30% | Delivery email or handover note |
| Go-live | 20% | Go-live confirmation |
Each milestone is a separate tax invoice raised when the milestone is completed, within the thirty-day service time limit. Writing the completion evidence into the contract prevents arguments about whether a stage is "done".
What if a service contract ends early or the scope changes?
Service work rarely runs exactly to plan, so decide in advance how you will bill the exceptions.
The contract is terminated midway
Section 31(6) of the CGST Act says that where a supply of services ceases under a contract before completion, the invoice is issued when the supply ceases, for the part of the supply made up to that point. In practice:
- Record the date the work stopped and what was delivered by then.
- Raise a final tax invoice for that delivered portion only.
- If the client paid an advance larger than the work done, settle the difference as agreed in the contract and keep the paperwork that supports it.
The scope grows
Extra work outside the agreed scope should be priced and approved before you start it. A short change note stating the added work, the fee and the client's written approval makes the later invoice easy to defend.
Worked example: a cancelled design retainer
A Kolhapur design studio agreed a ₹60,000-a-month retainer. The client ends it on the 12th of the month after the studio has delivered work worth 12 of 30 days. If the contract says fees are prorated by days, the final invoice is ₹60,000 × 12 ÷ 30 = ₹24,000 plus GST, issued when the supply ceases.
Common mistakes in service billing
- Invoicing late. Service invoices are due within thirty days of supply; billing quarterly by habit can break this.
- Wrong place of supply, charging CGST+SGST to an out-of-state client.
- Missing SAC codes or using goods HSN codes for services.
- Unbilled hours because time was not logged daily.
- Vague retainer scope, leading to unpaid extra work.
- Treating TDS as a short payment and chasing the client for it.
- Adding reimbursements without thinking about GST, either taxing pure-agent costs or leaving out costs that are part of the service.
- No written agreement on milestones, so the client disputes completion.
How software helps service businesses
Service firms benefit most from automation in recurring billing and follow-up. Billing Software by Betterwork, for example, supports GST invoices with SAC codes, recurring invoices for retainers, WhatsApp sharing, UPI payment links and automatic reminders, plus multi-currency invoices for overseas clients. If you are evaluating tools, read how to choose billing software or see the features page.
Key takeaways
- Choose a billing model that fits the work: hourly, fixed, retainer, milestone, usage or a mix.
- Issue service tax invoices within thirty days of supply (forty-five for banks, insurers and NBFCs).
- Use SAC codes and confirm the GST rate for each service.
- Decide IGST or CGST+SGST from the place of supply, usually the registered client's location.
- Invoice the full amount; TDS is deducted at payment, not on the invoice.
- Put scope, milestones and payment terms in writing before you start.
This guide is general information, not tax advice. Rules last checked on 20 October 2026; confirm with your tax professional for your situation.