INTRODUCTION: The erstwhile VAT/Service Tax regime in India was cumberome due to multiple taxes, innumerable compliance obligations and tax cascading effect. Under the GST regime, it is quite simpler especially for IT sector.
TAX RATES UNDER VAT/EXCISE/SERVICE TAX: Under the erstwhile tax regime, sale of packaged software attarcted both VAT and Service tax. VAT rate was 5% and Service Tax was 15%. Excise was also chargeable for manufacturing of IT products.
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Three taxes were applicable:
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Excise duty for manufacturing of IT products
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VAT for sale
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Service tax for providing service
So, there is a clear indication of double taxation, compliances and complications.
IMPACT OF GST ON IT: GST on the IT sector will attract 18% on software services provided by software companies. Initially it seems, for purely software services, cost of services will increase under GST.
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AVAILABILITY OF INPUT TAX CREDIT (ITC):- Although cost of software services will increase under GST, but there is a good news too in the form of ITC
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For example Nilesh & Co. provides both software services as well as sells IT related hardware items(Software CDs, other electronic packaged software). Nilesh & Co also pays an Annual maintenance charge (AMC) of Rs. 35,000 on the computers used in his office :
|
PARTICULARS |
BEFORE GST |
AFTER GST
|
|
Sell of Software Cds and other electronic packaged software |
2,00,000 |
2,00,000 |
|
VAT @ 14.5% |
29,000 |
|
|
GST @ 18% |
|
36,000 |
|
Providing software services |
1,00,000 |
1,00,000 |
|
GST @ 18% /Service Tax@ 15% |
15,000 |
18,000 |
|
AMC Contract |
35,000 |
35,000 |
|
Input Tax on AMC: |
|
|
|
Service Tax@ 15% |
5,250 |
|
|
GST@ 18% |
|
6,300 |
|
Total Tax Outflow |
49,250 |
47,700 |
Due to the ITC, Software business now can also adjust GST on office supplies and other capital expenditures/repair maintenance.
CLASSIFICATION OF CATEGORYWISE SERVICE PROVIDERS IN IT SECTOR
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Single Location Service |
Supply from single location but development at different places |
Import of Services |
Export of Services |
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That single location will be treated as location of supplier. (CGST+SGST) to be paid within the state, IGST to be paid outside the state. |
Although outward supply is from a single place, service provider has different centers at different locations which can also be registerd. ITC can be taken at various locations. At the end of the month these development centres can issue an invoice to principal place based on monthwise costing data of development centre. This way, all ITC received at various locations can be transferred to principal centre and adjustment can be taken thereon. |
On such import of services, IGST shall be payable and full credit can be taken. |
Also known as zero rated supply.
1. Supplier either can export services after paying IGST and claim refund or;
2. Can export services without payment of IGST under Bond/Letter of undertaking. |
CONCLUSION:- Although the GST rate for services has increased to 18%, IT industry will surely benefit from the GST regime, thanks to the immense boost in the sale of softwares. Other factors like availability of ITC will bring down the operating costs and thus, it will increase the overall profitability of the IT sector.