Impact of GST on IT sectorImpact of GST on IT sector

GST being locked at 18% on the IT sector in India has created ripples of change in this industry. The new tax system has amalgamated service tax, vat, and excise duty under one entity. Consequently, there are several benefits of GST on the IT sector. Although the tax system has been simplified with the elimination of cascading taxes, understanding the impacts of GST on this sector is necessary to know how it will affect businesses.

Eradication of Multiple Taxation

The previous tax system posed many challenges for the IT Sector. For example, software is listed under both a good and a service. Therefore, IT companies were expected to pay both VAT and service tax. With the commencement of the current GST rate on IT, businesses will be required to pay a standard single tax, which will reduce the confusion as well as sum up to approximately the same amount that they paid earlier.

Freelance IT Service Providers

The service tax that was originally 15%, after the implementation of GST has become 18% for freelancers who offer IT services. This has created a financial disbalance in their annual taxations. The GST rate on IT services maintains a certain ambiguity in its tax structure for bloggers. While bloggers are required to register for taxation, as opposed to the previous tax system, those earning under INR 20 lakh annually may not have to pay anything. This system is questionable for those who are freelance bloggers who also provide IT services. Whether this section has to register under GST or not is still undeclared.

E-commerce Sellers

The GST impact on IT sector requires all e-commerce businesses to pay taxes, regardless of what their annual turnover is. This will force small businesses to reduce their cap on profit even during the initial phase, given that the profit margins are usually low during that period.

Business Opportunities for Software Companies

Due to the advancement in the digital sector, the government has provided online registration for GST. The GST effects on the IT industry has paved a way for IT companies to obtain contracts for creating GST software from sectors dealing with finance. One of the best examples of this is Infosys that made more than Rs. 1,300 crores from GSTN. The government has been seen creating lots of opportunities for not only the big but also the small corporations when it comes to going digital.

Infrastructure Expenses and Credit Claims

While businesses are making haste for their ERPs to comply with the new GST on Information Technology, they are spending more on the company’s infrastructure. The previous tax system did not allow businesses to claim credits for maintaining a quality working environment. Quality infrastructure and other facilities were all categorized under aesthetics. However, the new GST system will allow IT service providers to claim full refunds on annual maintenance services.

Uniform Tax for all States

Services tax was obtained unevenly from different states owing to the previous taxation policies that varied for each state. Post its implementation, the GST impacts on the service sector entitles states like Jammu and Kashmir to pay service tax, too. IT companies in these areas will have to follow the new tax structure to run legally.

Software Reform

IT companies have realized the need for having software that would be equipped to calculate GST according to the new rules laid down by the government. This means that the IT industry would have to change or upgrade their systems to comply with the terms of the new policies, incurring huge expenditures.

Coping up with GST

It can be concluded that the IT sector is going to have an almost grey experience with GST. However, even with 18% tax, the IT industry is predicted to grow exponentially. After carefully analyzing how GST impacts the IT sector in India, GST appears to be just another economic reform that will be easier to cope with in due time. If you, too, are finding it difficult to cope, it is suggested that you look for Web GST Software that simplifies GST for all kinds of businesses. With dynamic GST computation, Web GST Software is a personal accountant that keeps your GST in check.