Information and Technology is one of the Imperial parts of the economy. Unlike any other sector, the new goods and service tax is going to have a profound impact on this industry. The earlier taxing system that included VAT and Service Tax made the taxing system complicated. The multiple taxing systems and cascading taxes before GST made up an elaborate taxing system for the organizations. The GST regime, will, in turn, result in a less complex and simpler taxing system, especially for the IT sector.

Less Complicated Tax Structure for the IT Industry

The old tax structure involved both VAT as well as service tax in the case of packaged software. The rate of the VAT tax is around 5%, and most of the states apply a service tax of 15%. Also, it involves a certain percentage of excise duty for manufactured goods. For instance, if the software is available on a CD, DVD, or a hard disk, the taxes are:

• Excise duty for its manufacturing
• VAT for sale
• Service Tax for offering service as software for multiple downloads.

The new GST taxation system aims to eradicate all such complex tax system.

The GST will, in turn, impose a total of 18% tax on the software services that the software companies offer. Also, for purely software services, the cost of such services are expected to increase under the GST.

Changed ITC Payment Structure for Computer Hardware

With the introduction of the ITC, the cost of infrastructure and business has seen a significant rise. But this tax has also brought a good news too for these companies in the form of ITC. Earlier, traders that were selling goods were unable to claim service tax paid on AMC for their computers and software products. Now, under the GST taxation system, this ITC is available.

Changed ERP System

With the new tax regime, many IT companies have to make changes in the ERP structure. The business software will undergo redesign making a coordination between their engineers and tax experts. These applications are now aligned to work according to the new GST rules by upgrading them or designing an entirely new application.

The Bottom Line

Several critical aspects changed as the new state came into existence. Even export of services is affected by the IT sector. To know more about how this new regime is going to change the IT sphere, please leave questions in the comments section. Also, if you wish to know about CGST, SGST, or IGST, please go through our next article.