India's previous VAT/service tax scheme was quite a burden on India's IT sector. A simplified GST tax regime has made taxation in IT easy.
The impact of GST on India’s IT Sector is paramount. Goods and Services Tax (GST) collections in December 2020 exceeded ₹1 lakh crore for the third consecutive month, signifying sustained recovery in business activity. Further, the implementation of the e-invoicing system in October 2020 also scaled the numbers.
Previously, India relied on a complex indirect taxation system comprising various taxes and taxation systems. However, the implementation of GST aided in unifying all of these taxes. This simplified the assessment process and made accounting and compliance easier. This blog will look at GST for IT services and how it will affect India’s IT sector.
The following aspects of GST will be covered in this post –
- Is GST applicable to the import of software?
- What is the GST for software services?
- Is GST applicable to the export of software services?
- What is the GST on the computer parts?
- What is the impact of GST on the Indian IT sector?
Is GST Applicable to the Import of Software?
The short answer is Yes.
The long answer is that – As imported software falls under the HSN Code 997331, it becomes an import of service. However, companies or individuals need not file a Bill of Entry for services. But concerned individuals must pay the required IGST on the RCM basis, as stated in Notification 10/2017-IT, which came out in June 2017. After payment, it gets the RCM status in the GSTR-1. As this makes the importer eligible for Input Tax Credit, the same becomes a part of the GSTR-3B.
What Is the GST on Software Services?
Under GST, IT software’s design, development, customization, enhancement, implementation, or up-gradation becomes a service supply. As per new rules, such a service attracts a software Goods and Services Tax Registration rate of 18%. Any software in its physical form becomes goods as per the Customs Tariff Act. They have the HSN Code 8523-80-20, and the rate for such software is 18%. Furthermore, the transfer of software IPR is also a service, attracting an 18% GST rate.
Goods and Services Tax (GST) is the value-added tax levied on all goods and services we use within the country. We offer a GST rate finder service that lists out the GST rates of all goods and services available in India. This service is also known as the HSN Finder.
Is GST Applicable to the Export of Software Services?
Exports to SEZ units and developers have a zero rating under the GST regime. This means such exports do not require any tax payment. However, the exporter can avail of the input tax credit on all inputs used to create the exports.
The two options for zero-rated IT services and exports under GST are as follows:
- Pay integrated tax for supplies, and receive a refund after exporting.
- Export supplies as per a bond and claim refund on inputs and services related to that export.Before registering for GST, you can calculate your owed GST using our GST Calculator India.
What Is the GST on Computer Parts?
| Sl No | Part | Computer GST Rate |
| 1 | Laptop | 18% |
| 2 | Desktop PC | 18% |
| 3 | Optical Drives | 18% |
| 4 | RAM and Memory Chips | 18% |
| 5 | Hard Drives (Int and Ext) | 18% |
| 6 | Pen Drives | 18% |
| 7 | Monitors LED/LCD (up to 32 inches) | 18% |
| 8 | Monitors LED/LCD (greater than 32 inches) | 28% |
| 9 | Laptop Adapter | 28% |
What is the Impact of GST on the Indian IT Sector?
The sale of packaged software was subject to VAT and service tax under the previous tax regime. In most states, the VAT rate was around 5%, while the service tax rate was 15%. Excise duty was also levied on the manufacture of IT products. For instance, if the software is distributed on a CD, DVD, or hard disc, it is subjected to three taxes. GST will eliminate all such complications and double taxation. Presently, the IT sector’s GST will be 18% on software services provided by software companies.
Since GST in the IT sector has an 18% rate, the cost of software services will increase. It will also result in higher infrastructure and administrative costs for businesses of all sizes. However, such companies also avail themselves of ITC benefits, which will help them rescue costs.
All in all, the IT industry will benefit from GST laws due to a boost in sales in the industry in the form of software sales. The availability of ITC will also help businesses lower their operational costs, improving profitability. Vakilsearch experts can assist you in avoiding GST-related compliance difficulties and help generate GST-compliant invoices for your software firm.
