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Software development charges

Abhishek Ranka (Accounts and Tax Manager) (62 Points)

16 August 2016

Dear Friends,

I have a small confusion on ST Input.

Software Development Cost will be 40 Lacs + Service Tax.

Advance payments are 5 Lacs + Service Tax monthly starting from May 2016.

Can we claim ST on all advance payments on those respective months? and is this Software Development charges are Revenue Exp or Capital Exp?

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5 Replies

Abhimanyu (CA) (316 Points)
Replied 16 August 2016

Dear Abhishek,
Thanks for the query,
Credit of Input services will be available when it is used for providing of output service and mfg. etc. as defined in CCR Rules Rule2(l), credit will be available AS SOON AS INVOICE IS RECEIVED thus receive invoice monthly from service provider and claim credit.

Secondly, Software Dev. is allowable expenditure u/s 37(1) as royalty charges and will not be capitalized

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Abhimanyu (CA) (316 Points)
Replied 16 August 2016

*in continuation
Though for accounting purposes it maybe called an asset or expense based on its nature details maybe read in AS 10, if any issue regarding

Abhimanyu (CA) (316 Points)
Replied 16 August 2016

this please revert back,

Thanks,
Abhimanyu

Abhishek Ranka (Accounts and Tax Manager) (62 Points)
Replied 16 August 2016

Dear Abhimanu,

In further discussion with management got to know that Ownership of the software is not going to transfer but software is online and will be taken care by that company we need to pay development charges now, and maintainance as well as service charges later when software will be ready.

Now looks like all are expenses and not asset.

Abhimanyu (CA) (316 Points)
Replied 16 August 2016

Abhishek Good afternoon,

Look, If management tells you that ownership is not going to transfer than that means every penny is to be expensed off, but if there reasoning behind non-transfer is because the software is online type than, you would need to go through the contract papers by yourself since a software in online mode can still be an intangible assets capable of transfer,
take an example of a car, we buy a car but still give it to the manufacturer co. for repair and servicing, because they know which nut is at which bolt, that does not make them the owner, similarly we need to relate the terms of development with the def. of intangible asset to check.
Though, the maintenance and service charges will always be expensed off.

Please revert if any issue or query in respect of Def. of I.A.

Thanks,
Abhimanyu