In a CNBC-TV18’s special series ‘Hello GST’, Menaka Doshi decodes the positives and negatives of GST for the information technology (IT) sector along with Sagar Shah, National Head – Indirect Tax, BDO India.
Currently there is a considerable litigation on whether software is a ‘good’ or a ‘service’ and taxability around it.
Shah says currently there is a considerable litigation on whether software is a good or a service and taxability around it.
According to him GST should help resolve this but only if law/rules are clear, or else the challenges and litigation will persist. Currently, software developers are centrally registered.
Under GST they will have to register in all locations where their software is used, said Shah, adding that it will be challenging to compute tax liability for B2B and B2C transactions.
Another issue said Shah is that a lot of software companies are located in SEZs and STPIs and most of their software exports are zero-rated. So, they go by refund mechanism or there is an exemption for some of the services that they consume.
Probably under GST, exemptions maybe moved to refund mechanism. This will impact working capital requirements and may also raise effective tax rate, he added.
Shah also said, currently VAT on software is 5 percent and under GST, if there is no p referential rate for software then the tax burden will be higher. For more details on the impact of GST on IT sector, watch video