As some of the partners who actively sell software licenses would have realized , selling software has just become more complex!
Till May 31, 2008, life was simple. Software was considered by the Govt. to be a product ( and rightly so) and was charged 4% VAT . Then some idle mind in the Govt. hit upon a brainwave. Let’s treat software as a product and also a service . That way Govt. could collect 4% VAT and 12.36 % service tax. Add to that the complication of TDS. Then Customs came into picture and said , " Hey , even we need to make some money. So start paying Customs duties on software licenses."
And so we had a great business model where those who sold software licenses at Gross Margins of 3% to 4% , had to pay VAT & Service Tax & Customs duty and also worry about TDS . These were truly exciting times ! My guess is that it was done by those officials who have soft corner for software pirates because the only thing this convoluted tax regime would achieve would be more software piracy !
The latest news is that the Software Distributors of Microsoft software would now import software paper licenses , pay the Customs duty and pass on the same to software resellers. This means service tax goes out of the window and software is treated as a product and charged Customs duty and 4% VAT . So lets all get ready to pay more for software on account of Customs duty . But the good news is , no Service Tax , no TDS .
I would love the feedback from you on this tax issue. Please leave your comments in the comments section.
with warm regards
live with passion 🙂