Chapter 99 - Technology And Tax: Learn About GST on Software

• Export to SEZ (special economic zone) units and developers are zero-rated i.e. there is no tax payable.
• Businesses can claim ITC (input tax credit), subject to the fulfilment of certain conditions.
• Individuals using software for personal purposes are not eligible for ITC.

Software and software services simplify several business functions, operations, and tasks. Likewise, GST (Goods and Services Tax) simplifies tax compliance by removing the cascading i.e. tax on tax effect.In today’s blog, let’s understand the specific tax implications for software and software services, including GST on and the software HSN code i.e. the harmonised system of nomenclature. Also Read: How Does GST Work in India?

Let’s start by listing some key GST points for software and software services. The applicable rate of GST on software and the software HSN code are captured in the following sections.

Software Supply as Services

The CGST (Central Goods and Services Tax) Act classifies the development, design, programming, customisation, adaptation, upgradation, enhancement, and implementation of information technology software as a supply of services.

Software Supply as Goods

When pre-developed or pre-designed software is supplied in any medium or storage (usually referred to as off-the-shelf software) or is made available via encryption keys, it is treated as a supply of goods.

Place of Supply

If the buyer and seller are situated in the same state, CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) are applicable. On the other hand, IGST (Integrated Goods and Services Tax) is applicable if they are located in different states.

Import of Software Services

Import of software from outside India is considered an import of service. Import of service means supply of service where the supplier is situated outside India, the recipient is in India, and the place of supply of service is in India.

Export of Software Services

Export to SEZ (special economic zone) units and developers are zero-rated i.e. there is no tax payable. However, the exporter can claim an input tax credit (ITC) on inputs/input services used concerning exports.

The e-Invoicing

It is mandatory for business-to-business software transactions, where the turnover exceeds a certain threshold. Exemptions There are certain exemptions applicable in GST on software and services, including the export of services to SEZ units and developers, as stated above.

The rate of GST on software is captured in the table below along with the relevant chapter of software HSN code. These details are hosted on Central Board of Indirect Taxes and Customs

Source: https://cbic-gst.gov.in/gst-goods-services-rates.html *1 Get the respective HSN code details at https://services.gst.gov.in/services/searchhsnsac *2 IGST = CGST + SGST

Businesses are entitled to claim ITC where the software is used or intended to be used in the course of or furtherance of business, subject to the fulfilment of certain conditions. For instance, a design company using design software for operational purposes can claim the credit. Consumers Individuals using software for personal purposes are not eligible for ITC. For example, you cannot claim credit for antivirus software for home computers.

Understanding the applicable GST on software regulations streamlines compliances. You can use an online GST calculator to determine your tax liability and comply with applicable provisions, including timely return filing, which is as crucial as timely EMI repayments.Talking of EMIs, you can set a flexible repayment tenure and schedule on your loans, aligning with your business needs. This helps you properly manage your finances and focus on business growth. To know more, talk to a representative from Aditya Birla Capital.