Impact of GST on the IT Sector: Key Changes and Insights

The Goods and Services Tax (GST) has been thrown in India, and it has affected almost every major and minor business industry in the country. This also comprises the well-reputed Information Technology (IT) sector of India, which is the foundation of the various IT revolutions and developments that take place here. However, GST has a basic tax system in India, replacing the various indirect taxes with a single GST tax system to remove the pouring of taxes.

The association of the Indian economy through Information technology (IT) is very well aware of all the changes in the future along with the GST and has also distributed a warning that serves not to take the information technology in an easy way by the way it contributes to the economy in a very heavy proportion. The National Association of Software and Services Corporations (Nasscom) president R. Chandrashekhar mentioned that the upcoming GST regime can create a hard scenario for the industry as with GST, there are lot many complex invoicing and billing coming ahead, which can further repress the taxation of IT industry making a tough growth.

Latest Update in IT Sector Under GST

NASSCOM requests people about technical issues being faced by IT industrialists on the GST portal. It is completed in a table format that consists of four columns, such as S.No., Subject, Suggestion, and Rationale. The specialist will focus on the top 10-12 errors that are impacting the IT Industry.

GST Impact on the IT Products & Services

The following major changes have been described in the tax rates of IT products and services.

As per the GST law, many items rummage-sale in the IT industry, like Printers, photocopying, fax machines, and ink cartridges, will now attract GST at the rate of 28% as opposed to the previous 18% tax amount.

Software services will be charged 18% under GST compared to the 15% service tax of the prior system. The tax rate on software CDs (besides other electronic packaged software) will also be 18% under GST.

The IT companies will have to install the hardware and software to ensure their systems comply with GST. This will increase the infrastructure cost and affect business capability, expressly for small businesses and startups.

One of the good impacts of GST is in the form of Input Tax Credits (ITC), which will be available to IT traders marketing goods and services.

Another major change is for the ERP and accounting service providers, who now have to upgrade their existing ERP systems rendering to GST or create a completely new GST software like Gen GST. This increases the cost of operation.

In the preceding taxation system in the IT industry, there was a single point of taxation, i.e., the central service tax, and also one point of registering. However, in the GST regime, there are now 111 points of taxation. So, now the companies will have to deal with the States as well as the Centre separately, which remains likely to increase the compliance cost.

Suggested Read: The Impact of GST on Wholesalers and Retailers: A Detailed Overview

Multi-point Taxation

There are a number of taxation points counting up to 111, which must be accessed while in the process of GST filing. The reason is the existence of multiple registrations ranging from 37 jurisdictions—29 states, seven union territories, and the Centre. In the words of Chandrashekhar, Under the GST regime, there are three tax points: vital GST, inter-state GST, and state GST. Multiplying three GSTs with 37 jurisdictions takes the total number of points of taxation to 111. It makes the IT companies catalog and file compliance reports at a staggering 111 points to clear all the way through filing the GST.

Place of Supply

Earlier, the taxation of the IT service wage-earners was carried out only from one location, the head office of the company. Under GST, a ‘place of supply provision has been familiarized, which brings the need for various billing besides invoices in the case of single contract services where the delivery is happening from many offices of the same activity. For that, the IT corporations will have to register in those states as well, where their customers, besides clients, reside.

GST Rate on IT services/products

The tax rates for IT services and goods have decreased slightly after the implementation of GST. But, the cascading of taxes and multiple tax systems has been completely removed. So, instead of a service tax + VAT + excise duty on the purchase of IT software services, patrons will now only pay a single GST tax, which will be more or less the same amount.

The E-commerce marketplace, which is a very big part of the Indian IT business, is also facing major changes in the newfangled GST tax regime. The GST provision requires online marketplaces to deduct ‘tax collection at source,’ i.e., tax from the sellers, and deposit the same to the management. So, each of the sellers will have to register and file returns online if they wish to claim the recognitions on TCS paid. This affects their investment and cash flow capability. This is likely to hamper the industry growth, thus making the state worse, and can also create a situation in which the seller could even draw their hands from such online platforms to sell their commodities, but that is highly unlikely.

Although GST has introduced an increased tax rate of 18% for most IT services and an immediate increase in the cost of implementation, it will definitely have a positive impact in the long term. Factors like the availability of ITC, no GST on exports, and removal of tax cascading will definitely bring the cost down and increase the overall benefits of the IT sector in the country.

Suggested Read: Impact of GST on FMCG Sector

Conclusion

Despite the GST rate for services amounting to 18%, the IT sector is set to benefit knowingly from the new tax regime. This is primarily due to the large growth in software sales. Also, the availability of Input Tax Credit (ITC) will help reduce operating expenses, increasing overall effectiveness for the IT industry.

FAQS

What is the role of information technology in GST?

The Indian government is implementing GST to substitute indirect taxes and streamline the tax system. Technology will lessen fraud and duplicate claims, improve company and government processes, and speed up the creation, uploading payment, and filing of invoices.

What is the impact of GST on ITC?

Input ITC can be reduced from the GST billed on the sales by the taxable person only after fulfilling some conditions. These situations given under the GST law are more or less in line with the pre-GST command, except for a few additional ones, such as GSTR-2B. These rules are direct and may be severe in nature.

What is the impact of GST on the IT sector?

GST on the IT sector will attract 18% on software amenities provided by software companies. For software program services, the cost will rise under GST.