GST Applicability & Tax Rates on IT Sector
Impact of GST on IT Sector
The earlier VAT/service tax regime in India was complicated due to multiple taxes, innumerable compliance obligations, and tax cascading. Under the GST regime, it will result in a simpler tax regime, especially for the IT sector.
Impact of GST on IT
GST on IT sector will attract 18% on software services provided by software companies. For purely software services, the cost of such services will increase under GST.
Businesses
All businesses, large or small are rushing to get their accounting systems and ERPs in sync with GST. This will mean an increase in infrastructure costs and changes in business systems. Most large companies have set up teams consisting of their own technical experts, finance experts, and an expert from their GST software vendor.
Avail ITC
While there is a significant increase in infrastructure and overhead costs for businesses, there is good news too in the form of ITC. Traders selling goods (paying output VAT) earlier could not claim service tax paid on AMCs for their computers and software. Under GST, this ITC is available. Redesigning business software IT service providers can also adjust all their input taxes against the service provided.
GST On Export Services Of IT
One of the major sources of foreign exchange earnings comes from the export of information technology services, with India being the top exporter of these services. The input taxes paid by the exporters will be authorized as a refund. Therefore, exporters must ensure that all service recipients’ addresses may be shown to the authorities upon request. Typically, ITES/IT will fall within the purview of BPO operations, software consulting, and software development. In addition to these activities, this regulation will also apply to services like software support and maintenance for intermediary services because there is no GST exception.
GST Applicability on IT Sector:
GST is applicable to the IT sector in India, like any other sector, and it covers the provision of goods and services related to IT. Here are some common IT services that fall under GST:
Software Services: This includes software development, software maintenance, software customization, and software licensing. These services are subject to GST.
Hardware Sales and Services: The sale of IT hardware, such as computers, laptops, and peripherals, is also subject to GST. Services related to hardware, like repair and maintenance, also fall under GST.
Consulting and IT Support Services: IT consulting services, system integration, IT support and maintenance services, and other similar services are subject to GST.
GST Tax Rates for IT Services:
GST rates are typically divided into different categories, such as 5%, 12%, 18%, and 28%. The specific rate applicable to IT services can vary depending on the nature of the service and other factors. Here's a general idea of the GST rates for IT services as of my last update:
Software Services: Most software services are subject to an 18% GST rate. This includes software development, customization, and maintenance services.
Software Licensing: The GST rate on software licensing can vary. For packaged software, it is typically 18%, while software as a service (SaaS) may be taxed at 18% or 12%, depending on the nature of the service.
Hardware Sales and Services: The GST rate on IT hardware, such as computers and laptops, is typically 18%. Maintenance and repair services for IT hardware are also taxed at 18%.
IT Consulting and Support Services: IT consulting and support services are generally taxed at an 18% GST rate.
Created & Posted by Navneet
Income Tax Expert at TAXAJ
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