The Goods and Services Tax (GST) has been launched in India, and it has affected almost every major and minor business industry in the country. This also includes the well-reputed Information Technology (IT) sector of India which is the source of the various IT revolutions and developments that take place here. However, GST has simplified the tax system in India by replacing the various indirect taxes with a single GST tax system to remove the cascading of taxes. So, how does GST impact the IT sector of the country? Let’s find out.

The association of the Indian economy with Information technology (IT) is very well aware of all the changes upcoming along with the GST and has also issued a warning that serves not to take the information technology in an easy way as it contributes to the economy in a very heavy proportion. While the National Association of Software and Services Companies (Nasscom) president R. Chandrashekhar mentioned that the upcoming GST regime can create a difficult scenario for the industry as with GST, there are lot many complex invoicing and billing coming ahead which can further strangle the taxation of IT industry making a tough growth.

Latest Update in IT Sector Under GST

• 26th October 2021: NASSCOM requests people regarding technical issues being faced by IT industrialists on the GST portal. It made a table format which consists of four columns as S.No., Issue, Suggestion and Rationale. The authority will focus on the top 10-12 errors that are impacting the IT Industry. 

GST Impact on the IT Products & Services

The following major changes have been reported in the tax rates of IT products and services.

• As per the GST law, many items used in the IT industry like Printer, photocopying, fax machines, and ink cartridges will now attract GST at the rate of 28% as opposed to the previous 18% tax rate
• The software services will be charged 18% under GST as compared to the 15% service tax of the previous system. The tax rate on software CDs (and other electronic packaged software) will also be 18% under GST
• The IT companies will have to arrange the hardware and software to make their systems in compliance with GST. This will increase the infrastructure cost and affect business capability, especially for small businesses and startups
• One of the good impacts of GST is in the form of Input Tax Credits (ITC) which will be available to IT traders selling goods and services
• Another major change is for the ERP and accounting service providers who now have to upgrade their existing ERP systems according to GST or create a completely new GST software like Gen GST. This increases the cost of operation
• In the previous taxation system in the IT industry, there was a single point of taxation, i.e. the central service tax, and also one point of registration. However, in the GST regime, there are now 111 points of taxation. So, now the companies will have to deal with the States as well as the Centre separately, which is likely to increase the compliance cost. Read the explanation below
• Under the previous system, the implementation of ERP used to be a long-term contract which was spread over the years, and the service tax was charged accordingly. Under GST, the supply of ERP will be continuous or periodic, and the tax will be levied accordingly
• GST also brings a great positive thing for the accounting software developer companies in India. Many companies have already launched their dedicated GST software to help businesses and CAs get compliant with the new tax system
• GST effectively removes the cascading effects of taxes on all the supplies of IT goods and services. Thus, the consumers will now have to pay only the actual tax amount. This will not only decrease the cost but also will improve the investment capability of the IT companies in the country
• Export of various IT-related services, such as software development, consultancy, and BPO services will be zero-rated under GST and companies will be allowed to claim credits on the input tax paid
• The tax rate for freelancers selling various IT services has been increased to 18% from the earlier 15% service tax. Bloggers with annual earnings of less than 20 lacks need not register for GST and/or pay tax
• Under GST, all e-commerce sellers are required to register and pay taxes, irrespective of their annual turnover. E-commerce companies are also not eligible to get the benefits of the GST composition scheme. The online marketplaces will have to collect TCS from their sellers and pay it to the government; the ITC will be available on such TCS paid

Multi-point Taxation

There are a number of taxation points counting up to 111 which must be accessed while in the process of GST filing the reason being multiple registrations ranging from 37 jurisdictions—29 states, seven union territories, and the Centre. In the words of Chandrashekhar, Under the GST regime, there are three tax points: central GST, inter-state GST, and state GST. Multiplying three GSTs with 37 jurisdictions takes the total number of points of taxation to 111. It makes the IT companies register and file compliance reports at a staggering 111 points to clear all the way through filing the GST.

Place of Supply

Earlier the taxation of the IT service providers was carried out only from one location, the head office of the company. Under GST, however, a ‘place of supply provision has been introduced, which brings the need for various billing and invoice in the case of single contract services where the delivery is happening from multiple offices of the same activity. For that, the IT companies will have to register in those states as well where their customers and clients reside.

GST Rate on IT services/products

The tax rates of IT services and goods have experienced a little hike after the implementation of GST. However, the cascading of taxes and multiple tax systems has been completely removed. So, instead of a service tax + VAT + excise duty on the purchase of IT software services, consumers will now only pay a single GST tax which will be more or less the same in amount.

The E-commerce marketplace, which is a very big part of the Indian IT industry, is also facing major changes in the new GST tax regime. The GST provision requires online marketplaces to deduct ‘tax collection at source’, i.e. tax from the sellers, and deposit the same to the government. So, each of the sellers will have to register and file returns online if they wish to claim the credits on TCS paid. This affects their investment and cash flow capability. This is likely to hamper the industry growth thus making the situation worse and can also create a situation in which the seller could even draw their hands from such online platforms to sell their commodities, but that is highly unlikely.

Created & Posted by Kartar

GST Expert at TAXAJ

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