Software development
This query is : Resolved
31 January 2011
A company is doing the business of software game development. The games will be downlaoded by the the ultimate customers through an intermediary channel.
Is this business a service and taxable under Service Tax
Is this business a service and taxable under Service Tax
31 January 2011
As of now it could come under ITSS service though there is doubt whether VAT is also chargeable.
01 February 2011
Thanks.
As per my knowledge, the software developed will be treated as a product and will be taxable under VAT.
There is no service rendered by the company.
Can the same item be taxable under VAT and Service Tax
As per my knowledge, the software developed will be treated as a product and will be taxable under VAT.
There is no service rendered by the company.
Can the same item be taxable under VAT and Service Tax
01 February 2011
Yes, it can be taxable under VAT and Service tax by analysing the definitions under ITSS and sale.
17 February 2011
Hi,
The deinition of "goods" as per Central Excise Act specifies items which are movable and can be bought and sold and also marketable.
Here a new product is being developed from the process.Will this game software developed by the company fall under the definition of "goods" and be taxable as per Central Excise Act.
As per ITSS, the service should be done by one person to another person. Please advice whether my understanding is correct or not.
The deinition of "goods" as per Central Excise Act specifies items which are movable and can be bought and sold and also marketable.
Here a new product is being developed from the process.Will this game software developed by the company fall under the definition of "goods" and be taxable as per Central Excise Act.
As per ITSS, the service should be done by one person to another person. Please advice whether my understanding is correct or not.
25 July 2025
Great questions! Let me clarify the tax treatment of software game development in India, focusing on whether it’s considered a **service** or **goods** and how VAT, Service Tax, and Central Excise may apply:
---
### 1. **Is software game development a service or sale of goods?**
* **Software as a product (packaged software)** — traditionally treated as **goods** under VAT.
* **Customized software or software services** — generally treated as **services** under Service Tax.
In your case, since the company develops games that customers download digitally through an intermediary channel, it’s **not a physical product** but a digital delivery.
---
### 2. **VAT applicability**
* VAT applies on the **sale of goods**.
* For **software delivered on physical media** (CDs, DVDs), VAT generally applies as it’s a sale of goods.
* For **software delivered electronically (downloaded)**, **VAT generally does NOT apply**, as it is considered a service.
Hence, **digitally downloaded software/game is typically not subject to VAT**, only Service Tax.
---
### 3. **Service Tax applicability**
* Under the **Information Technology Software Services (ITSS)** category, Service Tax applies on services related to software development, customization, consultancy, and related services.
* In your case, development and distribution of software games downloaded online would be considered **a service**.
* Service Tax is applicable on the **value of the service** (license fee, access fee, etc.).
---
### 4. **Central Excise**
* Central Excise generally applies to **manufacture of goods**.
* Software, especially digital/dowloadable software, does not qualify as “goods” under Central Excise because it’s intangible.
* Physical media with software may be subject to excise, but digitally delivered software/game is not.
---
### 5. **Can the same item be taxed under both VAT and Service Tax?**
* **If the software/game is sold physically (CD/DVD), VAT applies; service tax generally does not apply on sale of goods.**
* **If software/game is delivered electronically, service tax applies; VAT does not.**
There should be no **double taxation** on the same transaction under normal circumstances.
---
### **Summary for your case:**
| Aspect | Applicability |
| ----------------------------------- | ----------------------------------------- |
| Software game downloaded digitally | Service Tax under ITSS applies |
| VAT on downloaded software | Not applicable |
| VAT on physical software media | Applicable |
| Central Excise | Not applicable for digital software |
| Double taxation (VAT + Service Tax) | Generally no, depends on mode of delivery |
---
**Important:** Since the service tax regime changed to GST in 2017, now GST applies on such services and goods. For historical context or pre-GST queries, above applies.
---
If you want, I can also explain how GST applies on software/game development and sales now under current law. Would you like that?
---
### 1. **Is software game development a service or sale of goods?**
* **Software as a product (packaged software)** — traditionally treated as **goods** under VAT.
* **Customized software or software services** — generally treated as **services** under Service Tax.
In your case, since the company develops games that customers download digitally through an intermediary channel, it’s **not a physical product** but a digital delivery.
---
### 2. **VAT applicability**
* VAT applies on the **sale of goods**.
* For **software delivered on physical media** (CDs, DVDs), VAT generally applies as it’s a sale of goods.
* For **software delivered electronically (downloaded)**, **VAT generally does NOT apply**, as it is considered a service.
Hence, **digitally downloaded software/game is typically not subject to VAT**, only Service Tax.
---
### 3. **Service Tax applicability**
* Under the **Information Technology Software Services (ITSS)** category, Service Tax applies on services related to software development, customization, consultancy, and related services.
* In your case, development and distribution of software games downloaded online would be considered **a service**.
* Service Tax is applicable on the **value of the service** (license fee, access fee, etc.).
---
### 4. **Central Excise**
* Central Excise generally applies to **manufacture of goods**.
* Software, especially digital/dowloadable software, does not qualify as “goods” under Central Excise because it’s intangible.
* Physical media with software may be subject to excise, but digitally delivered software/game is not.
---
### 5. **Can the same item be taxed under both VAT and Service Tax?**
* **If the software/game is sold physically (CD/DVD), VAT applies; service tax generally does not apply on sale of goods.**
* **If software/game is delivered electronically, service tax applies; VAT does not.**
There should be no **double taxation** on the same transaction under normal circumstances.
---
### **Summary for your case:**
| Aspect | Applicability |
| ----------------------------------- | ----------------------------------------- |
| Software game downloaded digitally | Service Tax under ITSS applies |
| VAT on downloaded software | Not applicable |
| VAT on physical software media | Applicable |
| Central Excise | Not applicable for digital software |
| Double taxation (VAT + Service Tax) | Generally no, depends on mode of delivery |
---
**Important:** Since the service tax regime changed to GST in 2017, now GST applies on such services and goods. For historical context or pre-GST queries, above applies.
---
If you want, I can also explain how GST applies on software/game development and sales now under current law. Would you like that?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Notice from IT DEPTT IF FD AMOUNT EXCEEDS 10 LACS
- GST payable under RCM
- Applicablity on tds
- Unable to generate and save json file for updated return
- Regarding TDS not deducted on rent
- Inverted Tax Structure & Unutilized ITC on Services
- Audit of F and O T/O
- GSTR9- ITC
- Section 194I not showing in TDS RPU for Compnay Assessee for TDS on rent
- Tax audit & Switching from Presumptive taxation
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
