top of page
Impact Of GST On India’s IT Sector

 

Since the introduction of the Goods and Services Tax (GST) in India, almost all of the major and small business sectors have been impacted. This also applies to India's reputable IT industry, which is the driving force behind many of the IT changes and advancements that occur in this country. The numerous indirect taxes in India have been replaced with a single GST tax system, eliminating the cascading of taxes, but this has simplified the country's tax system. Therefore, what effect does GST have on the nation's IT industry? Let's research this.

 

The association between the Indian economy and information technology (IT) is very conscious of all the changes that will be implemented alongside the GST and has also issued a warning to not treat the information technology in a careless manner because it contributes to the economy in a significant way. According to the president of the National Association of Software and Services Companies (Nasscom), R. Chandrasekhar, the implementation of the GST regime could pose challenges for the sector because there will be a number of complex invoicing and billing requirements under the new law, which could further stifle the taxation of the IT sector and hinder its expansion.

 

The effects of GST on IT goods and services

​​

  • In terms of the tax rates on IT goods and services, the following significant changes have been noted.

  • Many items used in the IT sector, such as printers, photocopiers, fax machines, and ink cartridges, will now be subject to GST at a rate of 28% rather than the previous 18% tax rate under the terms of the GST law.

  • Instead of the prior system's 15% service tax, the GST will impose an 18% fee on software services. Under the GST, there will be an additional 18% tax on software CDs and other digitally packaged software.

  • In order to make their systems GST compliant, IT firms will need to set up the necessary hardware and software. In particular for small companies and startups, this will raise infrastructure costs and have an impact on business capability.

  • One positive effect of the GST is the availability of Input Tax Credits (ITC) to IT traders selling products and services.

  • The need to update their current ERP systems in accordance with GST or develop entirely new GST software, such as Gen GST, is another significant shift for providers of accounting and ERP services. Due to this, operating expenses go up.

  • There was only one point of taxation, the central service tax, and only one point of registration under the prior taxation regime for the IT sector. 111 points of taxes have been added under the GST system, though. Therefore, dealing with the States and the Centre separately will now be the responsibility of the businesses, which is likely to raise the cost of compliance.

  • In the prior system, service tax was applied in accordance with the length of the contract for the implementation of ERP, which was spread out over several years. A tax will be assessed in accordance with whether the delivery of ERP is continuous or irregular under GST.

  • The GST is also very beneficial for Indian businesses that create accounting software. Many businesses have already released their specialised GST software to aid businesses and CAs in complying with the new tax system.

  • GST successfully eliminates the tax cascading effects on all supplies of IT products and services. The only amount the consumers will now be responsible for paying is the real tax. This will help the country's IT businesses be better able to invest abroad by lowering costs as well.

  • Under GST, a number of IT-related services, including software development, consulting, and BPO services, will not be taxed on their way out, and businesses can receive credits for the input tax they paid.

  • From a previous 15% service tax, the tax rate for independent contractors providing a range of IT services has risen to 18%. The requirement for bloggers to register for GST and/or pay tax is waived if their yearly income is less than twenty pounds.

  • No matter how much money they make annually, all online merchants must file and pay taxes under the GST. The advantages of the GST composition system are also ineligible for e-commerce businesses. Online marketplaces will be required to obtain TCS from their vendors and pay it to the government; ITC will be accessible on such TCS paid.

​

Various Points of Taxation

 

Due to the numerous registrations spanning 37 jurisdictions—29 states, seven union territories, and the Centre—there are a number of taxation points totaling 111 that must be accessed during the GST filing process.  The GST system has three tax points: the federal GST, the inter-state GST, and the state GST. The total amount of taxation points is 111 when three GSTs are multiplied by 37 jurisdictions. It requires IT businesses to register and submit compliance reports at an astounding 111 points in order to complete the GST filing process.

 

Dispatch Location

 

Previously, the company's main office was the only place from which IT service providers were taxed. However, the introduction of the GST's "place of supply provision" necessitates the use of multiple billing and invoice methods for services provided under a single contract and delivered from various locations that are engaged in the same activity. The IT businesses will have to do that by registering in the states where their consumers and clients live as well.

​
GST Rate for IT Services and Goods

​

Since the introduction of GST, the tax rates on IT products and services have slightly increased. But multiple tax systems and tax cascading have been entirely eliminated. Customers will now only have to pay a singular GST tax, which will be roughly the same in amount, instead of service tax, VAT, and excise duty when buying IT software services.

 

A significant portion of the Indian IT sector, the E-commerce market, is also going through significant changes as a result of the new GST tax system. Online marketplaces must collect tax from sellers as required by the GST provision and put it in the government's account. If any of the sellers want to collect the credits on TCS paid, they must each register and submit returns online. This has an impact on their capacity for investments and financial flow. This could worsen the situation and make it more likely that sellers will turn to such online marketplaces to offer their goods, but that is extremely unlikely. This is likely to impede the industry's growth.

​

Although the tax rate for the majority of IT services has increased to 18% and the cost of implementation has gone up immediately, the GST will surely have a positive impact in the long run. As a result of elements like the availability of ITC, the absence of GST on exports, and the elimination of tax cascading, the cost of the country's IT sector will surely decline and its overall benefits will increase.

​

Does GST Apply to Software Services Exports?

​

Under the GST system, exports to SEZ entities and developers have a zero rating. This indicates that no taxes need to be paid on these shipments. The exporter, however, is eligible to claim an input tax refund on all inputs used to produce the exports.

​

Under GST, there are two choices for exports and IT services that are zero-rated:

​

Spend integrated tax on goods, then export to get a refund.

Export goods in accordance with a pledge and request a refund for the inputs and services used in that export. You can use our GST Calculator India to determine the amount of GST you due before registering for GST.

​

GST RATES IN IT SECTOR
​

Information Technology Services - 18 % Tax Rate

  • Management consulting and management services including financial, strategic, human resources, marketing, operations and supply chain management.

  • Business consulting services including public relations services

  • Information technology (IT) consulting and support services

  • Information technology (IT) design and development services

  • Hosting and information technology (IT) infrastructure provisioning services

  • IT infrastructure and network management services

  • Other information technology services

 Internet Telecommunications Services - 18 % Tax Rate

  • On-line text based information such as online books, newspapers, periodicals, directories etc

  • On-line audio/ video content

  • Other on-line contents

Maintenance, Repair and Installation Services - 18 % Tax Rate

  • Maintenance and repair services of office and accounting machinery/computers and peripherals/telecommunication equipment and apparatus.

  • Installation services of office and accounting machinery and computers/ radio, television and communications equipment and apparatus.

Other types of IT services - 18 % Tax Rate

  • Research and development originals in computer-related sciences

  • Telephone-based support services

  • Other information services n.e.c.

​​

What is the effect of the GST on the Indian IT industry?

​

Under the prior tax system, the sale of packaged software was liable to both VAT and service tax. The service tax was 15% in most jurisdictions, while the VAT was typically around 5%. The production of IT goods was subject to excise duty as well. As an illustration, the software is liable to three taxes if it is distributed on a CD, DVD, or hard drive. All such complexities and double taxes will be done away with by the GST. Currently, software services offered by software companies are subject to an 18% GST in the IT industry.

           

Overall, the GST rules will be advantageous to the IT sector because they will increase the sector's sales of software. Businesses will be able to reduce operating expenses thanks to the provision of ITC, which will boost profitability. Experts at Account Kart can assist you in avoiding GST-related compliance issues and aid in producing GST-compliant invoices for your software company.

bottom of page