As per current Service Tax rules, all the IT services are taxed @ 15% (Service Tax, Swachh Bharat Cess and Krishi Kalyan Cess) and Under GST the tax rate may come as 18% as per the expert. So it may lead to increase in tax portion under GST.
The registration limit has been increased from the current 10 lakhs to 20 lakhs (10 lakhs for NE states and Sikkim). It will help to small service provider from the statutory matters.
In case of software sales, as per current law in most of the states the VAT is around 5% and Service Tax is around 15%. So here as per the current system there is dual taxation effect. Under GST the rate seems to come down as there will be only one rate.
IT service provider can take the Input credit on Purchase of Goods for setting up the necessary Infrastructure with their GST output liabilities.
As per current system if a software comes in a CD or DVD or Hard disk, then there are 3 taxes like
1. Excise Duty for manufacturing of product
2. Sales tax i.e. VAT for sale and
3. Service Tax for providing Service as software can be downloadable for multiple times.
Under GST there will be only tax, which may lead to decrease in the prices.
As per GST, all the assessee need to register in each state for his business. Currently, all the Service Provider is registered under Central Service Tax dept. and billing, utilization of credit done from a single location. However, under GST all the offices (HO and Branches) need to register for their location- supply of service.
For small software company who is having only one location of business, there will not be much difficulties. However, for big IT Service Provider like MNC this will lead practical difficulties as the registration and other statutory matters to be taken care for each location- supply of service.
Let the IT company XYZ Solutions; HO at Bangalore (having branches at Chennai, Pune, Gurgaon Hyderabad) got into a contract from Mumbai-based company, and it has been agreed that all the task can be bifurcated to different branches as per their expertise and resource management. In this case, as per the existing service tax law, only HO (Bangalore) company will raise the bill and can take the service tax input and utilize the Input credit against the output liabilities. However, under GST all the offices have to be registered for their respective location. All the branches and HO need to raise the bill and to maintain the books accordingly.
IT Service provider- HO - (Bangalore) need to bifurcate services and bill the customer state wise or branch wise as per proposed GST law. However, under existing service tax law, there will be only one bill from the HO Location
Point of supply of service will be crucial for the billing.
GST is a destination based tax. At present under Service Tax, services are taxed at the place of rendering services. While in GST it will be taxed at the place of consumption.
All the export of services outside the country will not attract output GST as per the draft law.
Service Tax is charged at the place of providing service whereas the GST is a destination based tax. As per the existing service tax system, the service provider is paying tax from a centralized office. However, under GST, this need to be bifurcated among the business across the states where the services are consumed.
At present service providers are not eligible to take input tax credit from VAT and Sales Tax paid for making their IT infrastructure whereas under GST the Service providers will be able to claim those tax credits.
Credit for all inputs (goods and services) used for providing output services will be utilized for payment of GST on output. Earlier Vat and sales tax paid was not allowed to be set off against output liability under service tax law.