GST Impact on Software Industry
Guys, we all are listening to the word GST from last few years in India. Goods and services tax is nothing but a consumption tax imposed in India on the supply of goods and services. GST scheme was launched by Ex-President Pranab Mukherjee on 1st July 2017 midnight. GST rates are applied for all types of IT software stocks like services, media, products, electronic downloads and temporary transfers of intellectual property (IP) also at 18% with a full input tax credit (ITC).
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Important Link: “Central Board of Indirect Taxes and Customs”
The older taxation system in India was getting complicated due to multiple taxes such as VAT/Service tax, etc. Now all is covered in dual GST structure, under which we have state and central GST. Alike others, GST also had a major impact on IT industry as well.
GST impact on the software industry
The software/cloud/solutions are always been a litigator area because of difficulty in its classification into services and good
Before GST the selling of packaged software was entitled to both VAT (5%) and service tax (15%). There were also some cases where excise duty was also applied due to lack of clarity from the government. After the GST the rate of Taxation comes to stable 18%.
Let’s see examples to understand it in a better way:
1. Download Domestic & Foreign developed software
While downloading softwares developed in India, GST plays a good role for the user as due to this we are getting it only in 10% of CGST and SGST each on it, whereas through previous by adding the service tax of 14% and VAT of 12.5% goes for a high cost.
However outside India softwares, has a rate of IGST that is 20% but the rate of Service tax was just 14%, So here we are getting it at a high cost now.
We need to access the servers of websites for accounting, social networking, etc which are located in India and outside India. Here we have to count Service tax at 14% and IGST at 20% for the outside servers i.e. GST is high and service tax at 14 %, VAT at 12.5% and CGST and SGST at 10% each for the domestic servers which are located in India we have to pay in GST system.
3. Production and selling of software on media
Here previously we had an excise duty of 12%, service tax at 14%, VAT of 12.5% and after GST impact we havr just 10% for CGST & SGST each that will avail these processes in less amount than previous.
4. Packaged Software such as CDs
These are the softwares imported into CD’s or any other physical object, Basically, software in physical form is goods under GST. This impacts badly here as with the 20% of IGST compared with the service tax of 14% this makes it expensive than the previous one.
5. Services export
With all conditions of export service rule, the export is followed by 10% of CGST and SGST each rather than 14% service tax and 12% of VAT.
6. Maintenance of Software
Through software companies and their service/work contract, the maintenance of software is done. Here also GST impacts 10% each of IGST and CGST, rather than the 14% of service tax and 12.5% of VAT.
In short, India’s PM Mr. Modi is taking important steps to influence the IT sector. As the GST comes into the picture, There would be no more cataloging of software as goods and service.