The GST rate of 18% on software will lead to an end to software classification disputes, but will likely increase the cost of software services and products. “The tax rates for GST have gone up for IT services and products significantly.
While for services it was 15.5%, the VAT in different states varied from 13% to 18%. The impact will be huge since it will be more expensive to buy IT services and products.
This might have an impact on demand for IT services and products. For SEZ units for software, the upfront concession of tax will be replaced by a service tax that will be refunded,” Sudhir Singh, policy expert at software product think-tank, iSpirt, said.The domestic IT industry is expected to grow 10-11% in FY18. The National Association for Software and Services Companies said that the clarity brought by the GST rate would help the sector.
“(Clarifies) tax all software transactions at 18% be it services, supplies on media or temporary transfer of IP,” the industry lobby said on its official Twitter handle. But there are still some aspects to work out, software industry executives said.
“This removes the ambiguity, but there are still some nuances that need to be figured out, especially around products depending on which companies give the input credit,” a software industry executive said.
The government is gearing up to launch GST on July 1. The biggest tax reform will expected to break down trade barriers between the country’s state and union territories and unify the economy.