Goods and Service Tax (GST) has replaced several taxes such as excise duty, VAT and many more taxes levied by the Central and State Government. One common or unified tax is applicable across the whole supply chain. IT industry is one of the sectors is likely to be impacted by the implementation of GST in India. Let’s find the GST impact on IT sector in India.
Keeping in mind the financial independence of the States and the Centre, the Government applied a dual GST structure i.e., Central GST and State GST at each stage of the supply chain. According to GST Council Meeting, Information Technology services will fall under the category of 18% slab rate.
|Impact of GST on IT Sector in India|
|Sale of Packaged Software||5% (VAT rate)||18%|
|15% (Service Tax)|
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Remove Cascading Effect of Taxes
Cascading effect of taxes will be positively addressed under GST Compliance. Traders or businessmen under GST are entitled to claim for credit tax in the case of AMC (Annual Maintenance Service) contracts. Under Present taxation structure, IT Service Providers are not eligible to claim the tax credit which includes the assessment or charges spent on setting the IT infrastructure.
After the GST, both IT Service Providers and clients are entitled to claim for credit tax. Several levies across the supply chain with the regulations on tax credits will to a great extent curbed in GST. Service sectors now will be applicable to take credit of tax (VAT) paid on input goods. It is expected that GST will remove cascading effect.
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Business Process Change
GST Regime is a destination- based tax, the tax will be levied by the state government where the goods or services are consumed. Current taxation structure, most Information Technology Service Industries are registered only with central service tax authorities and all billing or accounting activities are happened at a Central location.
Under GST Compliance, it is essential for the service providers and businesses to obtain registration for all the states that they are providing services as well as all the states where the customer is located. This is to be done through SGST component of IGST is supplied for respective state.
IT service industries are required to bifurcate their services and prepare the bill for their customers based on the location of consumption. State- wise registration is essential after the implementation of GST. Thus it enhances compliance cost and will impact an Information Technology industry.
Those who are dealing with e-commerce businesses, it is presumed that GST Regime will increase administrative costs. E-commerce traders have hundred of sellers on its own platform and it enhances the compliance burden on them.
Small e-commerce platforms might face the cash flow issues and claim for the refunds tax paid on the inputs, whereas eCommerce platform might not be eligible for this. Under GST Regime, Tax Collected at Source (TCS)Regulation will enhance administration as well as documentation workload for eCommerce firms.
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Model GST Taxation structure realizes at least 111 points of taxation that IT industries who are rendering services across India will be required to seek registration in as many as 37 jurisdictions which will include 9 states, seven union territories and the Centre. This simply means that IT company will require to register and file compliance reports at as many as 111 points.
Way Ahead Of Time
New Government Guidelines under GST structure such as the e-way bill, time-bound process and clarity on electronic download classifications will be simplified the process of operating business for IT Service Industries. Still, something remains for taking considerations under GST. The government will be notified.
If any regulations made by the Government related to GST Law, Government will be announced it publicly.
What is your thought on the Impact of GST on IT sector? Do share your views and thoughts if you have any issue.