Excise /service tax on software

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 November 2011 YSR limited engages a SAP and purchases their off the shelf software.It also gets software modified to suit its requirement.

Total consideration is Rs. 150 lacs.Is excise duty is chargeable on this transaction on Service Tax.

Exhaustive answer will be appreciated.
regards,

U S Sharma

U S Sharma (Expert)
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11 November 2011 customized softwares attract service tax and vat, excise duty is charagle on canned softwares only

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2011 This everyone knows.I expect a detailed answer with respect to query.

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Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2011 answer specific to query raised is required please.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 In the context of software transactions involving SAP or other software providers, the tax implications under both excise duty (if applicable) and service tax (or GST in the current context) need to be considered based on the nature of the transaction. Here’s a detailed overview:

### Excise Duty (if applicable):

Excise duty traditionally applied to goods manufactured within India. However, software was often classified under "goods" for excise purposes if it was sold on a physical medium like CDs or DVDs. Excise duty was typically not applicable to software sold electronically (downloaded from the internet).

For software transactions like the one involving YSR Limited and SAP:
- **Off-the-shelf software:** If YSR Limited purchases off-the-shelf software (such as standard SAP software) physically (on CDs/DVDs), excise duty might be applicable if SAP is manufacturing and selling physical copies of the software.
- **Customized software:** If SAP customizes the software to suit YSR Limited’s requirements, and this customization involves physical delivery of a modified software version, excise duty could apply to the customized portion.

However, since software transactions are increasingly digital and often delivered electronically, excise duty might not be applicable in many cases, especially for pure software transactions that do not involve physical media.

### Service Tax (or GST in the current scenario):

Service tax (or GST post-2017) typically applies to services provided. In the context of software:
- **Off-the-shelf software:** If YSR Limited purchases off-the-shelf software, service tax or GST would apply on the service component provided by SAP. This would cover the licensing fee, installation charges, customization services, etc., if any.
- **Customized software:** The service tax or GST would apply similarly to the service component of the customization provided by SAP.

Here’s how it breaks down for YSR Limited’s transaction with SAP:
- **Total Consideration:** Rs. 150 lakhs (assuming this includes both off-the-shelf and customized software, and any related services).
- **Service Tax/GST Rate:** The rate would depend on the nature of services provided by SAP. For software services, including customization, the standard rate of service tax (before GST) was 15%, and under GST, it could vary between 12% to 18% depending on the specific nature of the service.
- **Taxability:** YSR Limited would be liable to pay service tax (or GST) on the services provided by SAP, which includes off-the-shelf software purchases, customization services, and any related installation or training services.

### Documentation and Compliance:

YSR Limited should ensure proper documentation for:
- Invoices from SAP detailing the breakdown of charges for off-the-shelf software, customization services, and any other related services.
- Compliance with service tax (or GST) regulations regarding payment, filing returns, and claiming input tax credit (if applicable under GST).

### Conclusion:

Given the move to GST in India, it’s crucial to align with current GST regulations for software transactions. Excise duty, if applicable, would primarily apply to physical copies of software, while service tax (or GST) applies to services provided, including software customization. YSR Limited should consult with a tax advisor to ensure compliance with current tax laws and to optimize tax implications related to software transactions.