Issues ailing Packaged Software Industry in India, some suggestions

It is my strong view that most of the issues faced by IT industry from the Indian Government is because bureaucracy and ministers don’t understand the nature of software industry well enough.

By its nature software industry has certain characteristics that makes it difficult to understand. So, I don’t blame any one for this state of affairs. Is there any way out? Yes. Inform, educate and train all those who are responsible to decide the fate of the software industry in India.

So, as a first step, let’s understand what are those characteristics and how they are currently handled by existing government regulations.

1. Dual Personality of a Software: Supreme court of India has ruled that Software is goods – thus liable to Excise/Customs duty and VAT. But, government of India slapped Service tax on Software Services in June 2008. This was done because it could not find any way to tax software downloaded from Internet. With this sale of software started attracting Service Tax in addition to VAT that was charged earlier. This is a clear case of double taxation, with the result that software has become costly by 12 – 27%. It can now be afforded only by rich individuals and highly profitable companies.

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