Read the article to find out about the applicability of service tax on IT sector in India.

The IT or the Information Technology industry of India has risen exceptionally in the past few years.The growth of Indian IT sector has changed the course of Indian economy as it has emerged as one of the largest and prominent sectors in India,generating employment in millions for India. In India, the services provided with respect to information technology are taxable under the service tax Act of India. Through this article we bring to you all the information about service tax on IT services in detail.

Taxable IT Services in India

A list of taxable services provided by the IT industry in India as per the service tax regulations is given below.

• The development of various information technology software.

• The study, analysis, designing and programming of IT software.

• Services like adaptation, upgradation, enhancement, implementation of IT software.

• Providing the right to use the information technology software for commercial exploitation. It includes the right to reproduce, to distribute and to sell information technology software and the right to use software components for the creation of other information technology software products.

Service Agreed to be Provided is Taxable

It must be noted that once a taxable service is provided, the service provider then becomes liable to pay service tax. Contrarily, according to the service tax regulations, a service provider is also liable to pay service tax on service which he has agreed to provide. Thus services that have been agreed to be provided and may still not be provided are also taxable. This means that receipt of advances which are given for services on which one has agreed to work, become taxable, on the payment of the advance fee. However, if in case the advances are retained by the service provider, the service provider becomes liable to pay service tax. It is also the same in case of cancellation of the contract of service.

•Making available the right to use information technology software supplied electronically.

The following services were added to the list of taxable IT services by amendments to the service tax regulations.

• The development, which includes the study,analysis, design and programming of the software.

• The adaptation, up-gradation, augmentation, execution and other similar services.

• Providing advice and assistance on matters related to IT software, including which includes services like carrying out feasibility studies on the execution of a system, providing specifications for a database design,supervision and assistance all through the start up phase of a new system and providing specifications to secure a database.

Applicability of VAT or Service Tax on Software

In India, any kind of sale of a software as an off-the-shelf product is considered as sales of goods and VAT and Excise duty thus becomes applicable on it. Excise on packaged software is levied on MRP valuation, and is subject to an abatement of 15% of MRP.

On the other hand, VAT or Service Tax applicability on a software dependsupon the transaction results in “transfer of right to use” the underlying goods. VAT is applicable in cases where there is a transfer of possession and effective control of the underlying goods to the customer. Contrarily, not VAT only service tax is applicable for software as a service (SAAS) or cloud technology service.

VAT or service tax in case of software is a complex matter as it engages various laws and notifications. Thus, it is advised that a Chartered Accountant be consulted for such matters.

Service Tax on Export of IT Services

Mostly, the export of IT services from India is not liable for service tax. However, in some exceptional cases, service tax may be appliedon the basis of place of provision of services rules.

Service Export from India Scheme

Export of IT services by exporters from India is entitled for the duty credit scrip under the Service Export from India Scheme. Therefore, all IT service exporters are suggested to acquire an Import Export Code or IE Code, before starting their IT services export business.