Impact of GST on Indian IT Industry

Indian Government introduced Goods and Services Tax (GST) in the year 2017. It is a kind of indirect tax on goods and services. After the arrival of GST, every sector in the country has evolved. Even the IT industry has seen a lot of reforms after the introduction of GST registration in India.

Goods and Service Tax (GST) gives many benefits to producers of goods. It has removed all other direct taxes such as VAT, Custom tax, and other excise duties. IT sector is a booming industry in India these days. With new ventures and amalgamations, the IT sector is seeing a high rise. After GST, the IT sector is changing hugely.

Just like other sectors, the IT sector has also gained many benefits after GST (goods and service tax). In this blog, we will discuss GST's impact on IT Sector. We will also discuss how goods and service tax (GST) is beneficial for the IT industry and how it has failed in certain ways.

Impact of GST on Different IT Products and Services

There has been a major change in the tax rates of IT products and services such as under:

1.     The previous rate of service tax on software services was 5%. It is now increased to 18% as per the latest rates of GST.

2.     IT traders who sell IT products and services will gain the benefit of Input Tax Credits as per GST rules.

3.     The current tax rate on IT services sold by freelancers is increased to 18% from 15%. Bloggers who earn less than INR 20 lakh per year do not have to pay GST.

4.     GST has resulted in the rise of infrastructure costs in IT companies.

5.     Accounting software developers will get more positive results after the arrival of GST in the country.

6.     E-commerce companies have to pay GST irrespective of their annual income.

7.     GST has increased the cost of operation in upgrading ERP and other accounting software solutions.

Benefits of GST in the IT industry 

There has been a positive GST impact on IT Industry from the last few years. This industry has got many benefits with the introduction of GST such as:

Ø Eliminates Cascading Effect

GST has brought a lot of changes in the process of buying and selling IT products. Earlier, IT vendors used to charge 3 kinds of taxes on the final products. As a result, the cost of the product would increase and customers had no benefits. It is different under the GST system. Traders will gain input credit under the new GST system.

There is a single tax on the sale of IT products. Both IT vendors and customers will gain credit under the GST regime. GST has also decreased exchange costs in the IT sector.

Ø Easy Taxation System

Before Goods and Service Tax (GST), there were many direct and indirect taxes in India on different gods and services. IT vendors had to pay service tax, VAT, and several other charges. But GST removed all these indirect taxes and put a fixed rate of tax on different items.

The tax rate on software products and services is 18% now. The single taxation system has shown a good Impact of GST on the Indian IT Industry. Moreover, it makes running the IT sector better and smoother. Get Your GST registration in Agra done by Expertbells professionals.

Ø Decreases Costs of IT Products

Due to the elimination of various indirect taxes, the cost of IT products will reduce as well. Customers will now have to pay lower costs than before for buying any IT product. Apart from that, the customers will also gain the benefit of Input tax credit after the arrival of GST.

Ø Reduces the Chances of Corruption in the IT sector

Before the introduction of GST, there was a lot of corruption in IT as well as other sectors. Many IT vendors used to sell products without receipts. This practice disturbed the full taxation system of the country. But now, GST brought a lot of positive changes in the IT sector. It has reduced corruption in the IT sector and other areas. There is no risk of selling IT products without receipts.

Ø No tax evasion

As per GST, the provision of “Place of Supply” is necessary for IT service providers. It means the authorities will check multiple branches in case of the preparation of billing and invoices. This provision will eliminate the risk of tax evasion in many major website designing & web development company. IT service providers cannot avoid tax on the sale of IT products and services.

Drawbacks of GST on Indian IT Industry

Just like benefits, there are also some drawbacks of GST in the IT industry of India. Let us have a look at some disadvantages of GST:

1. Increases Infrastructure Cost of Small Businesses

The negative GST impact on IT products and services is that it will increase infrastructure costs of small software development company. It is because the companies will have to develop their own hardware as well as software systems to work with GST software. This practice will increase difficulties for new and small companies as they have a small capital.

2. Rise in Operational Cost

There are various accounting solutions such as ERP and billing software. Many accounting service providers and IT companies will now have to upgrade their accounting software systems to work according to GST software. This will increase the operational costs of small companies and startups.

3. Difficult Tax System

Another bad Impact of GST on the IT industry is that it is a new taxation system. IT companies will have to hire tax consultants and specialists to work in the GST field. The overall cost of new companies will increase in this way. Even old companies will face some issues while implementing the new taxation structure.

Final Words

GST is a good step by Indian Government to reduce hassles of taxation system in the country. It has a positive Impact of GST on IT Sector and also some negative effects for IT vendors and customers. If the government makes few changes in GST, IT industry will surely see a booming period in the future. Expertbells offers GST registration services, Startup India registration, GST filing services, company registration, TDS return filing, and many more.