By Ramdas S, CRN, March 2, 2010, 1130 hrs
Software resellers across the country heaved a sigh of relief following the Finance Ministry’s decision to do away with service tax on packaged software. In a notification (17/2010-Service Tax) issued on February 27, the government has announced exemption of service tax on packaged and canned software—subject to conditions.
To ensure that software is exempted, there are primarily two conditions laid down: the necessary license should be provided along with the software, and the importer of the software should to pay excise duty on the software imported.
“We welcome this move by the Finance Ministry. This will ensure that we escape the double taxation—service tax and value added tax—on software,” said Harinder Salwan, Secretary, Infotech Software Dealers Association (ISODA). “It is now clear that software will be treated as goods, and hence the customers need not factor service tax on the bills.”
Since March 2009, service tax and VAT were levied on all software. Since service tax bills are subject to tax being deducted at source at a maximum of 10.3 percent, many resellers reported negative cash flows in business. According to a CRN-ISODA survey, as many as 58 percent resellers also saw a dip in their overall profits.
“Of course, what remains to be seen is if the distributors will pay excise duty and import software or will bill it along with service tax locally,” added Salwan.
“We are still not clear about the status of paper licenses. The notification explicitly says packaged and canned software. There is no mention of paper licenses. We hope that over next few weeks we can get clarifications,” said Devesh Aggarwal, President, ISODA. “However, what we do understand is that if excise duty is paid, then you don’t fall into service tax net. This also requires further clarification from both customs and service tax departments”
KV Omkarappa, a Bengaluru-based lawyer and commercial tax consultant, said. “We are presently studying Notification 31/2010–Customs, also issued on February 27, which pertains to canned software. It states the option of not paying excise duty on software is available only if the importer intends to pay service tax. The option states very clearly that there’s no need to pay service tax, if countervailing duty (CVD) is already paid.”
According to Salwan, there will be no impact on price of software in the short run. “With excise duty also increased to 10 percent, the street prices will remain the same on packaged software.” |