Impact of GST on Information Technology Sector, GST Impact on IT: India is the world’s largest sourcing destination for the information technology (IT) industry, accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry employs about 10 million workforces. More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy. India’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US. India’s technology and BPM sector (including hardware) is likely to generate revenues of US$ 160 billion during FY16 compared to US$ 146.5 billion in FY15, implying a growth rate of 9.2 per cent. Now check more details for GST Impact on Information Technology Sector from below…
Must – GST Impact in India
The contribution of the IT sector to India’s GDP rose to approximately 9.5 per cent in FY15 from 1.2 per cent in FY 1998. It is very important for this sector to analyze, discuss and prepare for possible impacts on costs, taxes and profitability under GST.
Impact of GST on Information Technology Sector
Present Tax Structure in IT Sector:
Under our present tax structure the sale of packaged software is entitled to both VAT and service tax.VAT rate is around 5% in most of the state and Service tax rate is 15%(including Swachh Bharat Cess and Krishi Kalyan Cess), Excise duty is also imposed in case of manufacturing of IT products.
Example if software comes in a CD or DVD or Hard disk, then there are 3 taxes
- Excise Duty for manufacturing of product
- Sales tax i.e. VAT for sale and
- Service Tax for providing Service as software can be downloadable for multiple times.
IT Sector Under The GST Regime:
Registration:
Under GST, all the assesses needs to register in each state for his business. Currently, all the Service Provider is registered under Central Service Tax dept. and billing, utilization of credit done from a single location. However, under GST all the offices (HO and Branches) need to register for their location. For small software company who is having only one location of business, there will be no difficulties. However, for big IT Service Provider like MNC this will lead practical difficulties as the registration and other statutory matters to be taken care for each location.
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Tax Rate:
Tax rate may come as 18% to 20 % as per expert, so it may lead to increase in tax portion under GST. Therefore the cost of IT Services will elevate, especially for end customers who do not usually claim the input tax credit. Under current tax regime overall rate of indirect taxes is come under 20 to 25 %( excise duty, vat, service Tax), and GST rate may come under 18 to 20 % due to this price of IT product may be cheaper but IT service is expansible.
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Cascading effects of Taxes:
Under GST both the IT service providers and their clients will be eligible to claim full credit of GST; this is expected to eliminate the cascading effects of the present tax structure.
Improved competitiveness:
Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
Gain to manufacturers and exporters:
The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
Key Points:-
- After GST cost of IT product may be cheaper
- Big MNC Company incurred more cost for infrastructure
- Remove cascading effects.
- Compliance cost increase.
- Input of various local taxes available under GST regime
- Reduce hassle and expense.
About Author – CA Kapil Goyal (Email: [email protected])
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