Indian IT sector has made India attain a strong position in the world economic scenario. IT sector in India accounted for nearly $150 billion worth of exports in the previous year.  India is the major sourcing destination for Information Technology and accounts for significant portion of the nearly USD 2,253 billion world market. The cost of IT skilled labor is 3 to 4 times less than what is found in U.S, U.K and other western countries. Hence, India with a huge English speaking and educated workforce is a lucrative option for outsourcing IT projects for Western countries. The introduction of GST has had a positive impact with little hiccups on the IT sector in India. Let us see the impact of GST:

 

 

Tax Regime for IT industry in India

The IT sector comprises of IT products and IT services which were earlier taxed with VAT and service tax. For IT products there is also additional excise duty. Previously VAT was 5% and service tax was 15% for IT products and services. But now there is only GST and there is no excise duty.

 

Previously the taxation was centralized with a central service tax office and all the transactions were done through it. Now there is an 111 points taxation, which requires registration in all 29 states and 37 jurisdictions. Small IT companies find it easy while large IT companies like MNC’s have a difficult procedure to follow. All the head offices and branch offices should be registered in the respective states.

 

The tax rate for IT services comes up to 18% to 20%, which is a considerable increase in tax for the IT services. While the tax rate for IT products was earlier 20% to 25% which included excise duty has been significantly reduced to 18% to 20% under GST. Hence, the IT services become costly to the end consumer and IT products become cheaper.

 

Under the new tax scheme, the clients and IT service providers can take full credit for their products and services and it reduces the cascading effect of the tax. The reduction in transaction costs of doing business increases the competitiveness and productivity of the IT industry. The manufacturers and exporters are on a profitable side with lesser tax and the phasing out of the central sales tax will reduce the cost of locally manufactured IT goods and IT services. India will be in a better position in the export market.

 

The new GST being introduced is a welcome step by the Central Government and the IT industry must embrace it with full arms. The IT industry must put in valuable inputs for GST and can vouch for reforms. I see GST, to be a positive move which will ensure our country’s development over a long run.

 

Source: An article from gst.caknowledge.in