GST & Indian IT Sector

The Indian Information Technology (IT) industry one of the biggest sourcing destination contributes a gigantic share to India’s economic growth and GDP. It alone employs nearly 10 million of India’s population and has changed the image of India the world over. So, understanding the tax implication of GST on this sector in particular is important from an economic perspective, keeping ease of business in mind.

IT Sector Under Previous Tax Regime

Considering the fact that the Indian IT industry is an outsource driven one, the previous tax regime was a simple one ensuring that IT sector continues to allure investment. In the previous tax regime, the IT sector was subject to a 5% VAT rate, 15% service tax rate, which includes Swachh Bharat cess and Krishi Kalan cess. In addition, there was excise duty levied on manufacturing of IT products. So, if a software is there in the form of a CD, then there were three taxes levied including excise duty on product manufacture, sales tax and service tax.

GST on IT Industry

With the implementation of GST, the cost of software services will go up as the IT sector comes under 18% tax bracket. Moreover, with this new form of taxation, the infrastructure cost will also go up. All IT businesses operating in India, big or small will need to get their accounting systems synchronized with GST, thereby hiring GST vendors and setting up an in-house team as well. Most of the companies are trying to have a team of technical, financial experts along with a reliable GST vendor pushing up their operational expenses.

All is Not Bad with GST

While, the infrastructure cost may go up, IT companies will benefit with AMC redemption and input tax adjustment. So, in the form of input tax credit the companies can get the annual maintenance cost redeemed. For example, the GST paid on company supplies during the year can be shown in ITC and you can get that money back. Moreover, when it comes to IT companies, there is a huge cost incurred on maintaining servers, which can also be adjusted now. This example can give a clear picture of how AMC redemption works.

In addition, GST will not be applied on export services, which again turns out to be a win-win situation for IT companies.

Furthermore, companies into software designing will also benefit greatly with GST coming into picture. Every company big or small will require a GST software. This surge in demand of software will give businesses a big boost. And a company, which can design this software at an economical price and offer their services at a competitive rate will definitely enjoy the benefit of a lot of business coming their way.

GST on Freelance IT Professionals

Availing freelance service of IT professionals will get a bit more expensive with GST. This is because the tax applied by freelance IT professionals will also go-up from existing 15% to 18% under GST regime. So, software services will be marginally higher than before.

Although, the new tax regime increases the price of IT services in India, marginally but overall it should be a beneficial move. Companies will benefit with spurt in sale of software and get AMC redemption at the time of filing the ITC. It will reduce the cost of operation and give a further boost to the IT companies in India.

As regards the initial challenge of transition, you can seek assistance of our experts at for GST solution. We can help you with invoice management, reconciliation, collaboration, return preparation & filing, dashboards and reports, and user management. Seek our end to end solutions on GST and make this transition a smooth and seamless one, and make the most of this uniform tax regime era.

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