GST Applicability & Tax Rates on Software Development
GST Applicability & Tax Rates on Software Development Services in India
1. Nature of Software Development Services under GST
Software development is treated as a supply of service under GST, whether the software is custom-built or developed and delivered over a period of time. It includes:
Custom software development
Mobile/web application development
Software consulting
Maintenance and support services
All these services are taxed uniformly under GST.
2. Applicable GST Rate
The GST rate for software development services is 18%.
This includes:9% CGST (Central GST)
9% SGST (State GST) for intra-state supply, or
18% IGST (Integrated GST) for inter-state or international supply.
3. Export of Software Services
When software services are exported outside India, they are treated as zero-rated supplies under GST, provided:
Payment is received in foreign currency.
The service provider and recipient are in different countries.
In such cases, no GST is charged, and exporters can claim refund of input tax credit (ITC) or make supplies under a Letter of Undertaking (LUT) without payment of tax.
4. Input Tax Credit (ITC)
Software development companies can avail ITC on their purchases and expenses such as:
Software licenses
Office infrastructure
Cloud hosting services
Professional services (legal, accounting, etc.)
However, ITC cannot be claimed on certain blocked credits like personal expenses or goods/services used for personal consumption.
5. Registration Requirements
Any software company or freelancer whose turnover exceeds ₹20 lakhs (₹10 lakhs for special category states) must register under GST. Exporters and inter-state service providers must also register, regardless of turnover.
Conclusion:
GST has brought uniformity in taxation for software development services in India. While the standard rate of 18% applies, developers providing services to clients outside India benefit from zero-rated export treatment. Businesses must maintain proper documentation and stay compliant with GST invoicing and ITC rules.
Aradhna Singh
Ca Intern
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