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How GST has impacted ITeS in India

  • Highlights

  • GST eliminates VAT complexities and double-taxation

  • Items used in the IT industry to attract 28% GST instead of the previous rate 18%

  • Exports of any/all kinds in the IT/ITeS sector is zero-rated, while input taxes paid will be refunded

The introduction of the Goods and Services Tax (GST) in India was heralded as on the most significant tax reforms in the country. It has ensured rationalisation of the economy and reinforced mop-up, producing consistent convergence under the 'one-nation one tax' idea. Industry experts, with one voice, have named it a facilitator of ease of doing business. GST has provided uniformity of rates and done away with various indirect taxes. Moreover, it has removed the deluge of imposes, broadened the tax net and contributed to tax income.

Let us see how it has impacted the IT/ITeS sector.

- Before GST was introduced, there was a certain level of uncertainty about the classification of software companies. States considered software as goods while the Centre classified it as service. Due to this, IT companies had to pay double tax on their products - VAT to the states and services tax to the centre. GST has resolved this issue by clearly stating the rules and classifying it under products or services.

Additional Read: GST advantages and disadvantages

- One of the positives of GST is the input tax credit made available to IT/ITeS companies. It is the tax on sales, which can be offset against tax on their purchases.


- Export of any kind of IT/ITeS services like BPO, software development, consultancy etc. has been zero-rated. Similarly, any kind of supplies to SEZs has also been zero-rated. It means that the sale under these two products will be free from taxes. However, companies can claim a refund on the inputs. This clause came with a pre-condition that the product had to be entirely delivered from India. In reality, many software companies work in collaboration with foreign partnerships. To this effect, the GST council has agreed to refund input tax credit even if services are partially delivered from abroad. This will hugely benefit the sector.

GST Calculator for Buyers

- Before GST, companies had to register centrally for filing their taxes. However, under GST, there are 111 tax centres spread across the country. These companies will have to deal with multiple centres as applicable. This mandate will increase their compliance costs and workforce.

Additional Read: What is GST

- GST has increased the cost of many products such as printers, fax machines, photocopy machines etc, to 28% from 18%. As a result, their operating costs have become higher.

- GST has removed the cascading effect of taxes, thus ensuring the end customer pays only the actual tax amount. If services providers pass this benefit to their customers and sell at reduced prices, they will profit in the long term.

Conclusion

The overall impact of GST on IT/ITeS is positive apart from a few compliance and regulatory mandates.

Additional reads on GST:
- How to File GST Returns
- Online GST Registration Process Explained

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