Long-awaited GST bill that is expected to unify and simplify the Indian tax structure was implemented from 1st April, 2017 and most industries are likely to fall under the blanket of its impact. However, the IT sector with services such as software development, mobile app development, website design and more, is one of the major sectors that are likely to be impacted.
WHAT DOES GST MEAN?
GST stands for Goods, services, and tax. It is an indirect tax that will be replaced by the different state and center taxes. This will form into a single and uniform tax. There are many sectors that have to go through more than 2-3 taxes but after the implementation of GST, there will be only one tax. The main purpose of GST is to rationalize the current indirect tax regime which will provide a stable economic environment favourable for growth and development.
Need of Automated Industry
- Tax Rates Under Excise/VAT/Service Tax: Under the old tax regime, the sale of packaged software attracts both VAT and service tax. VAT rate is around 5% in most states and service tax rate is 15%. Excise duty is also applicable in the case of manufacturing of IT products. Example: If a software comes on a CD, DVD or hard disk, then there are 3 taxes that apply to it. Excise duty for manufacturing of product VAT for sale and Service tax for providing service as software can be downloadable for multiple times
- Redesigning Business Software: The biggest hurdle is in changing the IT systems which require coordination between tax experts and technology teams. In many cases, some of the ERP software that were provided by the IT majors have to be redesigned and updated with the new GST rules. Companies are mainly upgrading their enterprise resource planning (ERP) and accounting software to accommodate the complexities of calculating GST.
- Software Developers and Sellers: There is a race for all fintech companies to develop a GST software. GST will impact these companies positively by opening a huge market pan India. Demand for GST software by all the companies will mean a huge boost to these software developers.
- Supply from single location but development at different places: Sometimes it happens that although outward supply is made from a single place, the service provider has different development centers at different location. These different development centers at various locations can be also be registered. Input tax credit received at various locations may be taken there. At the end of the month these development centers can issue an invoice to the principal place based on month wise costing data of development center. This way all input tax credit received at various locations can be transferred to the principal center. These credits can be used to pay GST on outward supplies
- Export of Services: Export of IT services shall be treated as zero rated supply. The supplier can either export services after paying Integrated Goods and service taxes (IGST) and claim refund or can export services without payment of IGST under bond or under letter of undertaking
Although the GST rate for services has increased to 18%, IT industry will definitely benefit from GST, thanks to the immense boost in the sale of the software.