GST Impact On Software Service Providers

GST abbreviated as Goods or Service Tax is defined as an inclusive tax at the national level which would be imposed on manufacturing, sale and consumption of goods & services. But, under GST there would be no difference between the goods and service as far as the imposition of tax is concerned.

If we ponder over the IT industry, then it can be deduced that currently IT services are charged 15 % as tax comprising of service tax, swachh bharat cess and krishi Kalyan cess. But when GST would come into play then the standard rate for services may elevate from 15 to 18%. Moreover, in the current scenario software sales are subjected to 5% VAT and 15% service tax as well. But after the enactment of GST, Vat will be eliminated and the other taxes would get applied depending on the software, whether it is a service or a good.

GST Regime: Under the GST regimen the three taxation points are-

  • Central GST
  • Inter-state or Integrated GST
  • State GST

Total Jurisdictions in India- 29 States + 7 Union Territories + Centre In totality, there becomes 37 Jurisdictions on a Pan-India basis.

Now, if we evaluate the total number of taxation points then –  37 jurisdictions * 3 taxation points = 111 taxation points

So, from above calculations it can be inferred that, IT companies and many other software service provider firms will necessarily have to get registered and they need to file compliance reports at all the 111 taxation points.

Though GST will upswing the stability of the Indian Tax Structure, but companies who are offering services in different states especially the IT companies will have to get registered separately in each of the states in which they are carrying out their business. So, every state will collect their share of the service tax under the new guidelines of GST. The biggest challenge under GST would be to provide various invoice receipts for the sake of account management, thus it would cause a potential administrative complexity. On the contrary, if we peek into the functioning of myriad of small scale e-commerce businesses then the GST reform would abrogate the advantageous impact of e-commerce platform, as they would be forced to seek funds, thus worsening their working capital problems. Once the GST comes into action, then their would be no such requirement of classifying the computer software as a service or a good. Rather it would aid in eliminating the litigation issues and the primary categorization.

Under the influence of GST, software companies will be required to file three service tax returns i.e. state GST, integrated GST and central GST for every single state. On the contrary, NASSCOM which is an IT & software group appealed to the GST council to contemplate a single registration process. It explained that manifold invoicing for services given under a single contract from various locations might render the sector’s global competitiveness at stake. Moreover, GST Network (GSTN) has already prepared a list of 34 companies as GST Suvidha Provider (GSP’s) who will help in frictionless adaptation to GST network.

With the onset of GST, manifold imposition of tax across the length and breadth of the market chain with cutback on the tax credits would be curtailed to a great extent. In addition to it, GST will lead to an upsurge in the compliance requirements thus delineating an increase in the operational freight.

The thrust of GST on the software companies:

  • Tax imposed on the manufactured goods will witness a surge from existing 14-15% to 18%, thus an elevation in the price of hardware, cell phones and laptops will elevate.
  • GST may form various tax evaluation systems for the IT and software organizations.
  • GST will constitute a single market in India and would allow free development and the supply of goods in the whole nation.
  • Experts believe that GST might elevate the regulatory expense for e-commerce business.

GST is foreseen as a reform that would epitomize a higher revenue efficiency, as GST is anticipated to decrease the cost of collection of tax revenues of the government. GST would serve as a mirror for the consumers because GST envisages a single tax right from the manufacturer to the end consumer and hence a transparency in the taxes could be seen.

Conclusion

So, in the end it can be concluded that the government should make sure that the GST reform inscribes the previously mentioned challenges so that this big change turns into a potential success for the IT Sector.

Let us know how your business is getting affected by GST. Please share your experience in the comments section below. We are working with leading chartered accountants (CA) and certified public accountants (CPA). We will happy to help you with tax and GST consulting. Just email us.

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