NASSCOM Community Admin

GST rates announced by the GST council and its relevance to the IT sector

Blog Post created by NASSCOM Community Admin on May 26, 2017

The GST Council has finalized GST rates for Services and Goods along with suitable grandfathering provisions of the current service tax exemptions. The council also approved seven rules pertaining to Valuation, ITC, Registration, Invoice, Payment, Refund and Composition under GST together with relevant formats. The relevant rate schedules are attached for your reference and the final rules can be accessed from here:

 

http://www.cbec.gov.in/htdocs-cbec/gst/index#

 

Please find below a preliminary analysis of the GST rates announced on goods and services and its relevance to the IT sector.  

 

  1. IT services are proposed to be taxed at 18% at (sl no 36 – residual categories of the GST rate for services)
  2. IT software (shrink wrapped) on media falling under HSN 8523 – 18% (ref: chapter wise rate wise gst schedule)
  3.  Software products (electronic downloads) – 18% (Sl no 36 - residuary category of the GST rate for services).
  4.  Temporary transfer or permitting the use or enjoyment of any Intellectual Property (IP) to attract the same rate as in respect of permanent transfer of IP – 12% (sl no 20 of the GST rate for services)

 

The above referred  entries iii and iv under services may lead to disputes re classifications for software downloaded electronically, as permitting right to use IP will be at 12%. Software products usually are sale of copyrighted items, and not the copyright itself i.e. – it is sale of right to use the IP. Therefore, despite harmonizing the rates of shrink wrapped software products and software services including electronic downloads at 18%, classification issues may continue.

 

v. On rent-a-cab services, it appears to be a neutral situation where the rate is 5% without ITC, and it is same for radio taxi, and cabs (entry 6, 7).

 

vi. 1% TCS will render selling online as a relatively expensive channel. TCS on eCommerce will require registrations of all sellers even if they were below the income threshold, leading to additional compliance. This makes selling using online channel more onerous for the small enterprises.

 

vii. On laptops, computers & networking equipment, 18% is higher than expected, as earlier effective Tax (VAT and Excise duty) was about 14%-15%.  Peripherals like projectors and some printers to attract an even higher rate of 28%.

 

Summary of GST rates of Software and related Items (before and after)

 

Goods / Services category

GST rate

Indirect Tax rate under current regime*

Remarks

Electronic supply of software

18%

15% (service tax) plus 5% (VAT)

 

Software services, ie, development, design, programming, customisation, adaptation, upgradation,

enhancement, implementation of information technology software;

18%

15% (service tax)

 

Temporary transfer or permitting use of IP

12%

15% (service tax)

 

Shrink Wrapped software product (on media)

18%

15% (excise duty & VAT)*

Will increase cost

Laptops, desktops, peripherals, parts, etc

18%

15%*

Increased cost for companies

Printer, photo copying, fax machines, ink cartridges

Ambiguity on the type of printers hence more details are awaited. Expected around 28%

13%* (ADP printers)

Increased cost for companies

Monitors and projectors (capable of connecting to ADP)

28%

13% * 

Increased cost for companies

Majority of Networking products

18%

13%*

Increased cost for companies

Mobile phones

Imported

12%

Over 13.5%*

Domestics manufacturing

12%

11%*

Slight increase in cost to end customer

 

*Please note that this is effective rate of indirect taxes for products is a total of VAT and Excise duty (after considering abatement, where applicable)

Outcomes