Understanding the tax regulations for software, particularly its HSN code and GST rate, can be intricate. This guide aims to clarify the complexities of software taxation within the current digital landscape.

Goods and Services Tax Application on Software Supplies

GST rules for software and its services are as follows:

Supply of Software in Different Forms

Software can be supplied in various formats. Under Schedule II of the CGST Act, activities like developing, designing, programming, customizing, updating, or implementing IT software are categorized as service supplies (as per Entry 5(2)(d) of Schedule II of the GST law). Conversely, when pre-made software is provided in a physical medium, through encryption keys, or as ‘off-the-shelf’ products, it is classified as a supply of goods under heading 8523.

Online Software Supplies

Online deliveries of computer software are distinctly classified. When software, including its updates, is accessed or downloaded over the internet, it is considered an Online Information and Database Access or Retrieval (OIDAR) service. Therefore, all online provisions of computer software fall under the OIDAR service category.

Exemptions

Some software offerings are exempt from GST, especially those provided by the government. A Nil GST rate may also apply to particular software, depending on its intended use and the recipients it serves.

Place of Supply

For intra-state transactions, where both the supplier and recipient are within the same state, both Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) are levied. For inter-state transactions, involving parties in different states, Integrated Goods and Services Tax (IGST) is applicable.

Import of Software Services

When software is imported under HSN Code 997331, it is categorized as a service import. Importers of such software are not required to file a Bill of Entry. Nevertheless, they must pay the applicable IGST under the Reverse Charge Mechanism (RCM), as mandated by Notification 10/2017-IT issued in June 2017. This payment then reflects as an RCM entry in GSTR-1. Crucially, after this payment, the importer becomes eligible to claim Input Tax Credit (ITC), which is subsequently reported in GSTR-3B.

Export of Software Services

Exports of software services to Special Economic Zone (SEZ) units and developers are zero-rated under GST, meaning no tax is payable on these supplies. Exporters, however, can still claim Input Tax Credit on inputs and services utilized for providing these exported services.

Invoicing and e-Invoicing

For business-to-business (B2B) software transactions, e-Invoicing is mandatory for companies with an annual turnover exceeding ₹5 crores.

HSN Codes and Goods and Services Tax Rates for Software

The table below provides the HSN codes and corresponding Goods and Services Tax rates applicable to various software-related products and services.

| HSN Code | Description | GST Rate ||—|—|—|| 49119910 | hardcopy (printed) of computer software | 12% || 85232990 | other for recording sounds | 18% || 85238020 | discs with information technology software | 18% || 85238090 | other | 18% || 85243111 | discs with information technology software | 0% || 85244011 | magnetic tapes with it software | 0% || 85249112 | information technology software on disc or on cd rom | 0% || 99831 | management consulting and management services; information technology services | 18% || 998311 | consultation in management areas: finance, strategy, hr, marketing, operations, and logistics | 18% || 998312 | enterprise advisory services, inclusive of pr consultancy | 18% || 998313 | it guidance and maintenance services | 18% || 998314 | designing and formulating it solutions | 18% || 998315 | services for it system hosting and infrastructure setup | 18% || 998316 | management of it systems and networking | 18% || 998319 | additional it-related services, not elsewhere classified | 18% |

Availability of Input Tax Credit for Software GST

For Businesses

Businesses are eligible to claim Input Tax Credit on software purchases used for operational activities, such as logistics management software for transportation firms or design utilities for creative agencies.

For Consumers

Individual consumers acquiring software for personal applications, such as home antivirus programs or video editing tools, are not entitled to claim ITC because these purchases are not linked to any business operations.