tax implication on "export of software"
This query is : Resolved
24 May 2010
what sort of tax implications do the business of "export of software" attracts towards itself?
Thanks
Thanks
Guest
Guest
(Expert)
24 May 2010
There are various tax provisions under the Income Tax Act 1961 on the income from export of software.
TAX PROVISIONS
Income Tax Act U/S 10A: provides for special provision in respect of newly established undertakings in Free Trade Zones ("FTZs") etc.
Under this section, profits and gains derived from the export of articles or things or computer software by an undertaking set up in any of the Free Trade Zone, Software Technology Park areas (STP) and electronic hardware technology park ("EHTP") areas are fully exempt for a period till 31st March 2010.
Income Tax Act U/S 10B: special provision in respect of newly established hundred percent export oriented undertakings (EOU).
Under this section, profits and gains derived from the export of articles or things or computer software by a hundred percent export oriented undertakings (EOU) are fully exempt for a period till 31st March 2010.
Section 35 of the Income Tax Act provides for tax deduction of any expenditure incurred on scientific research.
Any expenditure laid out on scientific research related to the business of a taxpayer is allowed as a deduction while computing taxable income.
Sub-section (2AB) of section 35 of the Income Tax Act provides for a deduction of 125% of any expenditure incurred by a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecom equipments, chemicals or any other notified article, on scientific research (not towards cost of land or building) on in-house research and development facility as approved by the prescribed authority.
Section 80 HHE of the INCOME Tax Act: deals with the deduction in respect of profits from export of computer software, etc.
Under this section if a company or a person is engaged in the business of --
(i) export out of India of computer software or its transmission from India to a place outside India by any means;
(ii) providing technical services outside India in connection with the development or production of computer software;
Then the profits derived from his business would be deductible from its taxable income .The extent of the deduction shall be an amount equal to 80% for assessment year beginning on 1st April 2001, 60% for 2002, 40% for 2003, 20% for 2004 and then no deduction will be allowed there after.
This deduction will be available provided the consideration in respect of the export of computer software is received in, or brought into India in convertible foreign exchange within a period of six months from the end of that financial year. This benefit is available only to Indian companies or Indian residents. This benefit is also available to supporting software developer selling computer software to exporting company.
TAX PROVISIONS
Income Tax Act U/S 10A: provides for special provision in respect of newly established undertakings in Free Trade Zones ("FTZs") etc.
Under this section, profits and gains derived from the export of articles or things or computer software by an undertaking set up in any of the Free Trade Zone, Software Technology Park areas (STP) and electronic hardware technology park ("EHTP") areas are fully exempt for a period till 31st March 2010.
Income Tax Act U/S 10B: special provision in respect of newly established hundred percent export oriented undertakings (EOU).
Under this section, profits and gains derived from the export of articles or things or computer software by a hundred percent export oriented undertakings (EOU) are fully exempt for a period till 31st March 2010.
Section 35 of the Income Tax Act provides for tax deduction of any expenditure incurred on scientific research.
Any expenditure laid out on scientific research related to the business of a taxpayer is allowed as a deduction while computing taxable income.
Sub-section (2AB) of section 35 of the Income Tax Act provides for a deduction of 125% of any expenditure incurred by a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecom equipments, chemicals or any other notified article, on scientific research (not towards cost of land or building) on in-house research and development facility as approved by the prescribed authority.
Section 80 HHE of the INCOME Tax Act: deals with the deduction in respect of profits from export of computer software, etc.
Under this section if a company or a person is engaged in the business of --
(i) export out of India of computer software or its transmission from India to a place outside India by any means;
(ii) providing technical services outside India in connection with the development or production of computer software;
Then the profits derived from his business would be deductible from its taxable income .The extent of the deduction shall be an amount equal to 80% for assessment year beginning on 1st April 2001, 60% for 2002, 40% for 2003, 20% for 2004 and then no deduction will be allowed there after.
This deduction will be available provided the consideration in respect of the export of computer software is received in, or brought into India in convertible foreign exchange within a period of six months from the end of that financial year. This benefit is available only to Indian companies or Indian residents. This benefit is also available to supporting software developer selling computer software to exporting company.
24 May 2010
thanx for ur suggestion but still need to know that does this business attract provisions of service tax act or DvAT act or any of the provisions of TDS????????
26 July 2025
Here’s a breakdown of the tax implications on **export of software** business in India as per the laws around 2010 (some details may have evolved, but this covers the essentials):
---
### 1. **Income Tax**
* Income earned from export of software is treated as **export income**.
* Under **Section 10A / 10AA of Income Tax Act**, software exports are eligible for **tax holiday/exemptions** (subject to conditions like SEZ or EOUs).
* The profits derived from software export units (especially in SEZs or EOUs) are often **fully or partially exempt** from income tax for a number of years.
* You have to maintain proper documentation and comply with conditions to claim these benefits.
---
### 2. **Service Tax**
* Prior to GST implementation (July 2017), **software export was considered a service** under **Service Tax**.
* However, export of software was classified as a **“zero-rated service”**, meaning:
* No service tax was charged on export of software.
* Exporters could claim **refund of input service tax credits** (CENVAT credit) used to provide such services.
* Therefore, **service tax was applicable but at 0% rate for exports**.
* You had to follow procedures like issuing **“Shipping Bill”** or **“Bill of Export”** and file appropriate documentation to claim refunds.
---
### 3. **VAT / Sales Tax (like DVAT)**
* VAT is **not applicable** on export of software (whether goods or services) because exports are outside the scope of VAT.
* For software export (considered a service), no VAT applies.
* So no DVAT or State VAT on exported software.
---
### 4. **TDS (Tax Deducted at Source)**
* Generally, **no TDS is applicable on export income** because payment is received from a foreign client outside India.
* However, if any payment is received from an Indian resident, TDS rules may apply.
* Also, if your company pays royalties or fees to others (e.g., subcontractors), TDS provisions may apply on those payments.
---
### Summary Table:
| Tax Type | Applicability on Software Export | Remarks |
| ----------- | --------------------------------------------- | -------------------------------------------- |
| Income Tax | Eligible for exemption under Section 10A/10AA | Tax holiday subject to conditions |
| Service Tax | Applicable @ 0% (Zero-rated service) | Eligible for input service tax credit refund |
| VAT/DVAT | Not applicable | Exports are outside VAT scope |
| TDS | Generally not applicable on export income | May apply on certain payments made by you |
---
### Additional Notes:
* You need to maintain proper export documentation, such as **Invoices, Shipping Bills, and Bank Realization Certificates (BRCs)**.
* For claiming income tax exemption, you need to register as an **SEZ unit or EOU** or comply with other specified conditions.
* Service Tax rules for export were quite complex; consult a service tax expert for refunds and compliances.
---
If you want, I can help with specific details on how to claim these exemptions or prepare your tax filings. Would you like that?
---
### 1. **Income Tax**
* Income earned from export of software is treated as **export income**.
* Under **Section 10A / 10AA of Income Tax Act**, software exports are eligible for **tax holiday/exemptions** (subject to conditions like SEZ or EOUs).
* The profits derived from software export units (especially in SEZs or EOUs) are often **fully or partially exempt** from income tax for a number of years.
* You have to maintain proper documentation and comply with conditions to claim these benefits.
---
### 2. **Service Tax**
* Prior to GST implementation (July 2017), **software export was considered a service** under **Service Tax**.
* However, export of software was classified as a **“zero-rated service”**, meaning:
* No service tax was charged on export of software.
* Exporters could claim **refund of input service tax credits** (CENVAT credit) used to provide such services.
* Therefore, **service tax was applicable but at 0% rate for exports**.
* You had to follow procedures like issuing **“Shipping Bill”** or **“Bill of Export”** and file appropriate documentation to claim refunds.
---
### 3. **VAT / Sales Tax (like DVAT)**
* VAT is **not applicable** on export of software (whether goods or services) because exports are outside the scope of VAT.
* For software export (considered a service), no VAT applies.
* So no DVAT or State VAT on exported software.
---
### 4. **TDS (Tax Deducted at Source)**
* Generally, **no TDS is applicable on export income** because payment is received from a foreign client outside India.
* However, if any payment is received from an Indian resident, TDS rules may apply.
* Also, if your company pays royalties or fees to others (e.g., subcontractors), TDS provisions may apply on those payments.
---
### Summary Table:
| Tax Type | Applicability on Software Export | Remarks |
| ----------- | --------------------------------------------- | -------------------------------------------- |
| Income Tax | Eligible for exemption under Section 10A/10AA | Tax holiday subject to conditions |
| Service Tax | Applicable @ 0% (Zero-rated service) | Eligible for input service tax credit refund |
| VAT/DVAT | Not applicable | Exports are outside VAT scope |
| TDS | Generally not applicable on export income | May apply on certain payments made by you |
---
### Additional Notes:
* You need to maintain proper export documentation, such as **Invoices, Shipping Bills, and Bank Realization Certificates (BRCs)**.
* For claiming income tax exemption, you need to register as an **SEZ unit or EOU** or comply with other specified conditions.
* Service Tax rules for export were quite complex; consult a service tax expert for refunds and compliances.
---
If you want, I can help with specific details on how to claim these exemptions or prepare your tax filings. Would you like that?
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