Goods And Services Tax (Gst) For It Sector – Dhanya M

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Goods And Services Tax (Gst) For It Sector – Dhanya M

GST stands for "Goods and Services Tax", and is proposed to be a comprehensive indirect tax on manufacture, sales and consumption of goods as well as services at the national level. It replaces all indirect taxes levied on goods and services by the Indian Central and State governments (GST India, 2016).

After the introduction of GST, there is a common market in India which has reduced the negative impact of the tax system. It has made huge changes in the tax structure, tax burden, tax computation, credit utilisation and reporting. It provides a complete direct tax system which is very transparent to the people.

GST consists of three tax points:

  • Central GST
  • Inter-state GST
  • State GST

Before we go ahead with more on GST, we need to know what tax rate is. A tax rate is the percentage of the tax which is payable by an individual or corporation. Here are the rates I found, during my research. The Revenue Neutral Rate is 15-15.5% and the standard rate is 17-18%. IT services may get taxed higher rate than the current Service Tax rate. In case of packaged software sales, if both VAT (5%) and Service Tax (14.5%) are applied, the resulting tax rate reaches 20% due to dual tax and tax-on-tax effect. So IT firms will be affected when GST is introduced.

Now let’s move on to how it will be affected.

  • GST simplifies the process of tax calculation by eliminating additional taxes.
  • IT companies can have several delivery centres and offices working together to service a single contract. With GST, companies have to provide an invoice to each contract party.
  • Duty on manufactured goods have gone up from the existing 14-15% to 18%, which means the cost of electronics such as mobile phones and laptops have increased.
  • Airlines have become more expensive as service tax is replaced by GST. Service tax ranges between 6% and 9% (depending on the class of travel). GST’s range is between 15% and 18%, thereby doubling the rate.

GST does have its advantages.

  • GST is a transparent tax and therefore reduces number of indirect taxes.
  • Under GST there is no hidden taxes for businesses so they know exactly how much tax they are paying.
  • GST helps in the diversification of income sources for the government, other than income tax and petroleum tax.
  • Biggest benefit is that multiple taxes like, central sales tax, state sales tax, entry tax, license fees, turnover tax etc. have ceased.

There is also a downside to it

  • Services have become more expensive. For example: Telecom, Banking, Airlines etc.
  • Being a new tax, it is taking some time for the people to understand its implications.
  • It is a consumption based tax, so in case of services, the place where the service is provided needs to be determined.
  • The Bill Of 18% GST is applicable on Goods and Services throughout the country. The prices of those goods and services on which we used to pay taxes below 18% has increased.
  • Conclusion:
    Thus, implementation of GST in the IT industry, although simplifies tax calculations and provides businesses a certain amount of ease, has its downfalls like increase in cost of doing businesses since there is an overall increase in the tax rate.

    GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax on manufacture, sales and consumption of goods as well as services at the national level. It replaces all indirect taxes levied on goods and services by the Indian Central and State governments (GST India, 2016).

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