Service Tax on Information Technology Software effective 16th May 2008

Information Technology Software service has been subjected to service tax with effect from 16th May 2008 with the Government notifying the date of amendments by the Finance Act 2008 in the Finance Act 1994 which is statutory  provision for levy of Service Tax. The date of 16th May 2008 has been notified vide Notification No.18/2008–Service Tax as  the date on which the provisions of the Finance  Act 2008 related to service tax come into force.

As defined by the Finance Act 2008, “information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.

Further, services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be subject to service tax.

Taxable Service is service provided or to be provided to any person, by any other person in relation to information technology software for use in the course, or furtherance, of business or commerce, including,—

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,

(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software,

(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software,

(v) acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,

(vi) acquiring the right to use information technology software supplied electronically.

As defined by the Finance Act 2008, “information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.

Further, services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be subject to service tax.

Moreover, the definition and scope of the following taxable services is being amended as a result of on levy of service tax on information technology software service, namely:-

(i) Business auxiliary service [section 65(19)], so as to omit the reference to exclusion of information technology service;

(ii) Consulting engineer service [section 65(105)(g)], so as to omit the exclusion of computer software engineering consultancy and provide that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this service;

(iii) Technical testing and analysis service [section 65(106)] so as to specifically include testing or analysis of information technology software;

(iv) Technical inspection and certification service [section 65(108)] so as to specifically include inspection, examination and certification of information technology software;

 (Source:Allindiantaxes)

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18 Comments

  1. vishwanatham said,

    May 24, 2008 at 2:36 pm

    Hi,

    With bringing of IT s/w service into service tax net, whether it will yet attract VAT? or are there any exception to this? Pl can u clarify.

  2. Rishi Jain said,

    June 3, 2008 at 4:49 pm

    In my opinion either an item can be sold or service may be provided. Service Tax should be applicable in case where a Service is provided, in case where a Ready Product is available only VAT should be applicable on it.

    Could u please clear this matter to me?

  3. Ajit modagi said,

    June 10, 2008 at 8:22 am

    VAT or Service tax either payable on product

  4. Ajit modagi said,

    June 10, 2008 at 8:41 am

    please clarify service tax payable on softwear w e f 16-05-2008 & KVAT Tax is payable w ef 1.04.2006
    wether both the taxes can be levied on the same product ?

  5. Deepak Chandak said,

    June 10, 2008 at 3:26 pm

    Pl. Clarify VAT and Service TAx provisions both combine together, its applicability to Software Product.

  6. Ajit Gupta said,

    July 25, 2008 at 4:33 pm

    Dear All,
    I purchase a Microsoft licance software, company charge service tax and vat on its basic price and again vat chage over value of service tax. So I can’t understand plese give us its rule and act.

    Ph. 05446254058, 9415232145

  7. Deepak Kumar said,

    August 13, 2008 at 5:38 pm

    Hi,
    i am working with a Software Technology Company. A Pune based company is deveoping software for us, according to the contract there job is define as ” job work” in our agreement . They generate invoice with Vat from last one year but after this 16 may 2008 effect they are charging both Taxes vat and service tax now on 100% amount. are they correct? when i argue with them that you can charge either service tax or vat /service tax on partly ratio and vat on rest ratio but you can’t charge both on same amount then they required section/article which can specify that they can charge vat on 80% and service tax on 20% or anything else with sections. plz help me
    my no is : 09891580081 /46056884/5/6

  8. Want to know said,

    September 6, 2008 at 5:02 pm

    I am working in a weighing scale servicing company in which vat (8.7)& service tax are both taken on 100% of basic against AMC. Many industry says that it can’t be claimed on 100. I want to know if it is legal or not? If leagal what is it’s clarification?

  9. PACHAIYAPPAN.K said,

    September 12, 2008 at 11:52 am

    Sir,

    As per company act double taxation is not applicable in india. In ITSS licencing they government charged VAT + Service Tax from 16.05.2008. The Service Tax Department they are not Notified clearing for this type of tax. so, pl. explain.

  10. November 5, 2008 at 8:15 am

    Our line of business is Trading in software Testing tools + consultancy & support.

    1. on 1st time sale – we charge VAT
    2. on 2nd year AMC – we charge Service Tax

    Do we have to burden the customer more in terms of taxes?

    regards
    sanjay

    • Rajesh said,

      November 5, 2009 at 6:43 pm

      you need to charge VAT @ 4% on 75% of the Basic Value & 10.3% ST on 25% of the Basic Value. You have to charge VAT as you are procuring some parts for AMC & charge ST as you are investing in the labour.

  11. Vijay Dey said,

    June 2, 2009 at 10:00 am

    Please let me know what are the tax implication on software sales and then on amc. Breakup of these % also is required as of 15.6.09

  12. Prasad said,

    December 31, 2009 at 3:44 pm

    Please clarify whether service tax + VAT is applicable on licence software purchase.

  13. T.N. RANGANATHAN said,

    January 22, 2010 at 2:48 pm

    We are resellers for IT hardware and software products. When we procure packaged imported software from Distributors paying service tax of 10.36% on the purchase value plus VAT, we in turn bill it to the enduser applying the same tax norms as above. Can the service tax collected from the enduser be set off against the service already paid by us while purchasing the product as in the case of VAT applicable in Tamilnadu.

  14. Alok Kumar said,

    April 15, 2010 at 1:44 pm

    We are software provider. Do we have to charge 10.36% tax when we first deliver them services and then same amount next year on AMC

  15. Sanjana Pincha said,

    November 3, 2010 at 3:41 pm

    Software Development companies providing services in India and outside Indian and total revenue exceeding the threshold limit but the services provided with in India does not exceed the limit in that case whether Service tax is applicable Since export is exempted from Service Tax.

  16. amit kumar mondal said,

    May 19, 2011 at 2:07 pm

    service tax applicable under information technology and software service,when administration regular service given to client.

  17. CA Vimal Agrawal said,

    October 14, 2011 at 10:55 am

    Plz suggest me that TDs applicable or not on Licence version purchased with Service tax & VAT


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