GST Rate & HSN Code For Software and Software Services

Navigating the world of taxation can be complex, especially when diving into the nuances of software HSN code and GST rate. This article highlights these intricacies, clarifying software taxation in today's digital age.

Applicability of GST on Software and Software Service Supply

GST rules for software and its services are as follows-

• Supply of software in different forms: As per Schedule II of the CGST Act, activities such as the "development, design, programming, customisation, adaptation, upgradation, enhancement, and implementation of information technology software" are classified as the supply of services (No. 5 (2)(d) of Schedule –II of the GST law).
  On the other hand, when pre-developed or pre-designed software is delivered in any tangible medium or storage (often referred to as off-the-shelf software) or is made available via encryption keys, it's treated as a supply of goods, falling under heading 8523.
• Online Software Supplies: Supplying computer software online has a distinct classification. Accessing or downloading software, along with its updates, is seen as an OIDAR service. In essence, any online provision of computer software is categorised as an OIDAR service.
• Exemptions: Certain software, particularly those issued by the government, are exempt from GST. Additionally, specific software types have a Nil GST rate, determined by their usage and the beneficiaries they cater to. 
• Place of Supply: In-state 
  • In-State Sales: If both the supplier and recipient are located within the same state, CGST and SGST are applicable.
  • Interstate Sales: When the supplier and recipient are located in different states, IGST is applied.
• Import of Software Services: As software imported falls under HSN Code 997331, it's treated as a service import. Companies or individuals importing software don't need to file a Bill of Entry for these services. However, the concerned entities must pay the required IGST on a Reverse Charge Mechanism (RCM) basis, according to Notification 10/2017-IT from June 2017. Following this payment, it assumes the RCM status in the GSTR-1. Importantly, post-payment, the importer becomes eligible for Input Tax Credit, which subsequently becomes a component of the GSTR-3B.
• Export of Software Services: Software service exports to Special Economic Zone (SEZ) units and developers are zero-rated under GST, implying no tax payment is necessary. However, exporters can claim input tax credit on all resources used to produce the exported services.
• Invoicing/e-Invoicing: e-Invoicing, mandatory for Businesses-to-business software transactions, is essential for firms with a turnover above ₹5 crores.

HSN Code and GST Rate on Software and Software Services

This table outlines the software HSN code and GST rate for various products and services related to the software industry. 

Is ITC Available on GST on Software? 

• For Businesses: Companies can claim ITC when they buy software for operational purposes, such as fleet management software for a logistics company or design tools for a design firm.
• For Consumers: Individuals purchasing software for personal use, like video editing tools or antivirus for home computers, cannot claim ITC as it's not tied to any business operation.