• Sudhir Singh

    How GST will work for software exporters

    GST council has yesterday cleared all the bills required to implement the GST. Finance minister wants to kick-start from July 1 2017. This can be easily achieved is the model laws can be enacted in the current session of parliament. The GST is therefore set become a reality from the second quarter of the current financial year.

    GST is going to catalyze greater IT adoption. We can see the business going digital in future and a Digital India emerging.

    Apart from receiving GST as a catalyst for Software product industry growth, we also need to get prepared for adopting GST our selves. Not everyone has prepared for GST though. At iSPIRT we are starting discussion group on GST so that community can take advantage from shared learning. This blog is the first in series of this effort.

    Few fundamental changes in the Goods and Service tax (GST) as it is called are

    • It is supply based and not sales based tax system
    • Being an indirect tax, it applies where the consumption happens
    • There are three statues and taxes that are part of GST i.e. SGST (state GST), CGST (Center GST) and IGST (integrated GST = SGST+CGST)
    • Both state and center will get tax on Goods and services supplied unlike earlier only Center received the service tax
    • The GST subsumes many of the indirect taxes prevalent at present

    GST will significantly change the way of doing business. Also, it is bound to greatly impact the international trade regime e.g. excise duty will merge in GST and deemed exports benefits under excise laws may come to an end. The exports aspect will impact Software exporters, irrespective of whether they are operating under SEZ, STP, EOU, EPCG or outside as these export schemes. GST on Import is going to impact every one, as in globalized world with cloud penetration, everyone is bound to use goods and services imported.

    In this blog we cover in brief the application of GST on the import and export of goods and services.

    How it impacts Import?

    Basic custom duty (BCD) is not covered under GST and it will remain same. There will be two components on each import to be paid i.e. Basic Duty + IGST.

    IGST will subsume currently applicable countervailing duty (CVD) and additional duty of customs (SAD).

    Integrated Goods and Services Tax (IGST) means tax levied under this Act on the supply of any goods/services in the course of inter State trade or commerce. IGST has two components SGST and CGST. A supply of goods/services in the course of Import into the territory of India shall also be deemed to be a supply of goods/services in the course of inter-state trade or commerce.

    The levy of IGST will be payable for each transaction, as against the monthly payment in case of IGST payable on domestic interstate transactions.

    The other difference in GST is aboput IGST computation. The IGST will be computed on transaction value of imported goods plus duties and taxes etc. charged under any statute other than the GST Law. Hence, ISGT will be applied on total landed value, basic customs duty and any other charges.

    On import of services GST will be based on reverse charge method just as the Service tax is today i.e. IGST will apply on reverse charge mechanism. Hence, all Software or a SaaS bought online will be subject to reverse charge basis IGST.

    But there is a input credit allowed in ISGT on imports. The service provider, trader or manufacturer of imported goods/services shall be eligible to offset IGST paid on import of goods/services against his output liability. The same does not apply to BCD as BCD is not part of GST.

    Although it does not apply to Software sector, the anti-dumping duties and safeguard duties will continue to be applied as they were and have not been subsumed in the IGST.

    Impact on exports

    Exports under GST will be Zero rated i.e. there will not be any exports duty except on items that enjoy an export duty levy currently. Software exports will be zero rated.

    The biggest impact will be on units presently enjoying exemptions on inputs like service tax in SEZ. Under GST all duties and taxes will be payable at the time of a transaction when procuring input goods/service and the exporter can get refund for these after exporting. Exemptions will be replaced by refunds after exports.

    This will put lot of burden on arranging working capital for the inputs. This burden will be higher for manufacturing firms than services firms.

    On pursuance of commerce ministry, in a recent announcement, the finance ministry has agreed to relax the refund pains. The finance ministry has agreed to refund 90% of the duties paid by exporters within a period of seven days under the Goods and Services Tax (GST) regime. If duty refunds could not be made within seven days, then government will pay interest to exporters. However, it is yet to be decided how much interest will be paid to exporters in such a scenario, as per announcement. (Source: livemint news item)

    The remaining 10% refund will be made after verification by tax authorities.

    This is a bit of relief to exporters. Compliance process will change from presently exemption based compliance to a refund claim filing in time.  The crux here is to use digital technology to automate many of these issues in GSTN.

    Whereas these announcements have been made, the details will depend upon how rules are notified.

    GST will undoubtedly make the efficient in long run. However, the next one year will be full of challenges and adjustments by Ministry of finance to oversee a smooth rollout.

    Should you have further questions on GST, please write to sudhir@inspirt.in




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    • Muthu Somasundaram

      Dear Sir,
      My name is muthu CEO of Cupel Apps.

      I am running a software export firm(Saas) . My customers are based on outside of India. They don’t pay me directly. The Canadian company shopify collects the payment and pays me through PayPal in USD. And my firm is partnership firm.

      These payments are monthly recurring. Do i need to pay GST? . If so how much percentage. Thank you for your answer

      Cupel Apps

      • Ripulryu

        @muthu_somasundaram:disqus : I have the same question and similar business.
        @sudhir singh : Any reply sir ?

        • Muthu Somasundaram

          Still i dont know, i did not get any answer here. As far as i know, there is no need to register for GST if annual turnover is less than 20 Lakhs. And since, we dont need to move materials from one place to another, there is no need to worry about GST… For software exports, there will not be any GST… since who will finally pay? otherwise 18% rate

          • Prashant Kumar

            As I understand, software export is non-taxable if received in convertible foreign exchange e.g. USD . However, I am unsure, whether GST registration needs to be done for the same even if the taxability is 0.
            Can anyone please answer?

            • Raman

              Hi Prashant,

              What if the income is from both local and foreign companies?

              We have a IT company and we build software for a foreign company, so, as per your answer, there won’t be any GST for the amount received from them.

              At the same time, we also build software for a local company in India. Will there be GST for the amount that we get from them?

              Does 20 Lakh limit applies to only Local income or total turnover of the company? And what is the GST rate in this case?

            • Prashant Kumar

              Hi Raman,

              As far as I understand
              1) An exporter/importer has to mandatorily register for GST. Export is covered under IGST. However, you don’t have to pay any GST.
              2) To qualify as an exporter, there are many criterias one of them being that the amount received from foreign customer should be in Convertible foreign exchange such as USD.

            • Muthu Somasundaram

              Hi Prashant Kumar,
              Thank you. But i think there is no need to register under GST if turnover is less than 20 Lakhs either you are an exporter/importer. Am i right?

            • Nirav Patel

              Software export is taxable @ 0% .

      • vikas

        @sudhir, can you please reply?

        • Muthu Somasundaram

          Still i dont know, i did not get any answer here.

      • Nirav Patel

        You do not require to Pay any GST as as export of Services. if you Turnover is more then 20lakh. then only require to register but 0% GST on export services.

        • Muthu Somasundaram

          Thank You very much Nirav Patel for your clarification. Again any income tax exemption benefits for generating revenue from overseas? I know residents of india have to pay taxes.. but it seems that there is a provision for tax exemptions to certain extent for exporters.. i am grey in that area. any suggestions?

        • bkgupta

          Your reply is grossly misconceived.Every service exporter would have to register.

    • Raman

      Hi Sudhir,

      We have a IT company and we build software for a foreign company, as per the the discussion here, we don’t have to pay any GST since we receive the amount in USD.

      At the same time, we also build software for a local company in India. Will there be GST for the amount(Rs) that we get from them?

      Does 20 Lakh limit applies only to Local income or total turnover of the company? And what is the GST rate in this case?

      • Nikhil Singh

        For software exporter, no need to pay any GST (although you have to register for GST if your total turnover exceeds 20 Lakh INR…
        If your total turnover (i.e. Local income + income from export of service) exceeds 20 Lakh INR, then register for GST on urgent basis.. although you have to pay GST only for invoices that you raise for local services…
        Hope my answer helps

        • Raman

          Thanks for the response Nikhil.

      • bkgupta

        Total Turnover has to calculated.Furthermore,if you are an exporter then you are not eligible for the Threshold limit of 20 lac.Get yourself registered immediately.

    Mar, 17
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