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Impact of GST on Information Technology Sector

The new GST regime has impacted almost every minor/major business sector, across the country and the IT sector is no exception. In the previous tax regime, packaged software attracted both VAT and Excise duty of around 5% and 15% respectively, while excise duty was also applicable in the manufacturing of IT products.

Let’s take a look at the post GST scenario and how the IT sector has been impacted, by the new indirect tax regime:

GST’s Impact on IT:

Under GST the IT sector will now attract a tax of 18%. In the case of purely software businesses/services, the cost of business increases under GST.

  • For Businesses:

With all the companies rushing to now make their ERPs GST compliant, this will result in an increase in infrastructure costs. Most companies will now have to hire a specialized team of technical and financial experts to cater to the new tax regime.

  • Availing ITC:

Even though there are increased infrastructure/overhead business costs, ITC brings with it some good news. Earlier traders could not claim service tax paid on AMC for computers/software, but now under GST, they can claim this ITC. IT service providers, redesigning business software can adjust input taxes against services provided along with the VAT paid for supplies. Similarly, IT companies who maintain servers generally end up spending a lot on hardware, which can now be adjusted against the tax paid on services and repair.

  • Redesigning of Business Software:

The biggest challenge being faced by IT systems now is proper co-ordination between technology teams and taxation experts. In many cases, ERP software now has to be redesigned to ensure compliance. They need to either upgrade the existing software or use software that is GST specific, like GreenGST.

  • Software Developers/Sellers:

Almost all fintech companies are now racing to develop a GST software, this will end up opening a huge market across India. The demand for a GST software by companies would mean a significant boost, for these developers.

  • Freelancers:

Freelancers offering various IT services like web-designing, app development etc. were earlier required to pay 15%, as a service tax. Under GST the tax will now be increased to 18%.

Even though the GST rate for the IT industry has increased to 18%, it will still see continued growth due to the boost in software sales. The addition of ITC to a host of services will also help in bringing down operating costs, hence increasing the profitability of the industry overall. Tell us what you think about the impact of GST on the IT industry, in the comments section below.

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