The Digital Taxation Maze: GST Rate & HSN Code for Software and Software Services

In the rapidly evolving digital landscape, the intricacies of taxation, specifically concerning software and software services, is crucial for businesses and individuals alike. This article aims to shed light on the applicability of GST on software, the nuances of HSN codes, and the corresponding GST rates. Let's explore the details of this digital taxation.

What are GST Rules for Software and Software Services

Supply of Software in Different Forms:

According to Schedule II of the CGST Act, various activities related to software, such as development, design, programming, customization, adaptation, upgradation, enhancement, and implementation, are categorized as the supply of services.

Pre-developed or pre-designed software, delivered physically or via encryption keys, is treated as the supply of goods falling under heading 8523.

Online Software Supplies:

Supplying computer software online is considered an Online Information and Database Access or Retrieval (OIDAR) service.

Accessing or downloading software, including updates, falls under this category.

Exemptions:

Certain government-issued software is exempt from GST.

Nil GST rates apply to specific software types based on their usage and beneficiaries.

Place of Supply:

In-state sales attract CGST and SGST.

Interstate sales involve the application of IGST.

Import and Export of Software Services:

Import of software services falls under HSN Code 997331, with IGST payable on a Reverse Charge Mechanism (RCM) basis.

Export of software services to Special Economic Zones (SEZ) units and developers is zero-rated under GST.

Invoicing/e-Invoicing:

e-Invoicing is mandatory for business-to-business software transactions for firms with a turnover above ₹5 crores.

HSN Code and GST Rate on Software and Software Services:

Understanding the Harmonized System of Nomenclature (HSN) codes and GST rates is pivotal in navigating the taxation landscape for software.

HSN Code	Description	GST Rate
49119910	hardcopy (printed) of computer software	12%
85232990	other for recording sounds	18%
85238020	discs with information technology software	18%
85238090	others	18%
85243111	discs with information technology software	0%
85244011	magnetic tapes with it software	0%
85249112	information technology software on disc or on cd rom	0%
99831	management consulting and management services; information technology services	18%
998311	consultation in management areas: finance, strategy, hr, marketing, operations, and logistics	18%
998312	enterprise advisory services, inclusive of pr consultancy	18%
998313	it guidance and maintenance services	18%
998314	designing and formulating it solutions	18%
998315	services for it system hosting and infrastructure setup	18%
998316	management of it systems and networking	18%
998319	additional it-related services, not elsewhere classified	18%

Is Input Tax Credit (ITC) Available on GST for Software

For Businesses:

Companies can claim ITC when acquiring software for operational purposes, such as fleet management software or design tools.

For Consumers:

Individuals purchasing software for personal use cannot claim ITC, as it is not tied to any business operation.

Conclusion:

As we continue to embrace the digital era, understanding the tax implications of software and software services is indispensable. By demystifying the GST rules, HSN codes, and corresponding rates, businesses and individuals can ensure compliance and make informed decisions in the dynamic world of digital taxation. Stay informed, stay compliant, and navigate the digital tax landscape with confidence.