The ambitious GST regime is all set to roll out making an inevitable impact on all sectors. And the IT sector, unsurprisingly, is sure to feel a wave of tumult too. It means that now that the GST Model law has set in, the transition to GST for the Information Technology Sector would be necessary too resulting in some major effects.
So what could they be? Read on to know the impact of GST on IT software industry.
Unlike the present indirect tax structure that requires a single Central registration, under GST regime, the assessees shall require to be registered in each state of business. For small software organisations, it won’t be much of a hassle but for giant IT Service Providers, statutory matters pertaining to multiple registrations would be requiring to be taken care of.
The GST rate on IT Industry can be taken in a twofold way. One, that of IT services is likely to increase and make the services expensive for end users as they do not claim Input Tax Credit. The price of IT products may be cheaper as the GST rate would come down to 18 to 20% unlike the present indirect tax (which includes VAT, Service Tax, and Excise Duty) rate that is charged at 20% to 25%.
Input Tax Credit for Recipients
For the IT Service Providers, the clients as well shall be eligible to full ITC, and this is expected to eliminate the cascading effect of tax that is present in present tax regime.
In the Model GST Law, there are 111 taxation points. This means if an IT giant is operating in various states, it shall have to comply with GST compliance with near to 111 taxation points.
Besides, under the current indirect tax regime, the sale of packaged software attracts both Service Tax and VAT all of which shall be subsumed once GST comes into force.
Therefore, with the implementation of GST, which is a destination based tax with a hope to bind India into One Tax, the government is expected to address several concerns and challenges.