FAQ for GST on IT\/ITES dated 18-08-2017
General FAQ on GST – GST Frequently Asked Questions (FAQs)
GST
Question 1 : Whether software is regarded as goods or services in GST?
\nAnswer : In terms of Schedule II of the CGST Act, 2017, development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software and temporary transfer or permitting the use or enjoyment of any intellectual property right are treated as services.
\nBut, if a pre-developed or pre-designed software is supplied in any medium\/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523.
\nQuestion 2 : What are the implications of recognising the development, design, programming, customisation, adaptation, upgradation, enhancement, and implementation of information technology software as a service?
\nAnswer : The primary impli<\/p>\n
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\nAnswer : If the supplies are made by unregistered suppliers, GST is liable to be paid by the recipient, who is a registered person, under section 9(4) of the CGST Act, 2017. Therefore, in this case 'B' is liable to pay GST on services provided by these individuals. 'B' can claim credit of this tax paid by him on reverse charge.
\nQuestion 5 : What is the rate of tax on IT services?
\nAnswer : The rate of GST on IT services is 18%.
\nQuestion 6 : Whether exports of software services attract GST?
\nAnswer : Exports and supplies to SEZ units and SEZ developers are zero-rated in GST. Zero-rating effectively means that no tax is payable on exports but the exporter\/supplier is entitl<\/p>\n
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\n (4) the payment for such service has been received by the supplier of service in convertible foreign exchange; and
\n (5) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with explanation 1 of section 8 of the IGST Act, 2017.
\nQuestion 8 : How do I determine the place of supply of IT\/ITES services?
\nAnswer : Place of supply of IT\/ITES services is the location of the recipient in terms of section 12 and 13 of the IGST Act, 2017. However, if the recipient is not registered and his address is not available on the records of the supplier, the place of supply would be the location of the supplier.
\nQuestion 9 : How to determine the location of the recipient?
\nAnswer : Location of the recipient of service is defined in section 2(14) of the IGST Act. A recipient of services is treated as locate<\/p>\n
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\nQuestion 11 : I am an Indian Company who makes software and sells it outside the country. I have hired a firm (not a related party) 'C' located abroad to facilitate the supply of software in Europe and the USA; would I be liable to pay GST on the payments that I make to this entity abroad?
\nAnswer : No. In this case, 'C' is covered by the definition of 'intermediary' [section 2(13) of the IGST Act, 2017]. The place of supply of such intermediary service is location of the supplier in terms of section 13(8) of the IGST Act, 2017. As 'C' is located outside India, GST is not payable in this case.
\nQuestion 12 : What factors determine the location of 'C' (in question 11) as being outside India?
\nAnswer : In terms of section 2(15) of the IGST Act, 2017, the location of a service provider is to be determined by applying the following steps sequentially :
\n (1) where a supply is made from<\/p>\n
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\nAnswer : You are an intermediary and the place of supply of the service provided by you to the principal is in India irrespective of the mode of payment. Hence, GST is payable on the services provided by you as an intermediary to the principal.
\nQuestion 14 : I have more than one SEZ unit in different States; do I need to take separate registrations? Also, I have two SEZ units in one State. Can I take a single registration?
\nAnswer :
\n(1) Yes. Under GST, every entity shall take GST registration in each State from which it makes taxable supplies. However, a single registration can be taken for all your SEZ units within a State, whether located in one SEZ or more than one SEZ.
\n(2) A person having unit(s) in a Special Economic Zone as well as outside the SEZ in a State shall make a separate application for registration for<\/p>\n
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\nAnswer : The recipient, if registered, has to pay the applicable IGST on reverse charge basis. If the recipient is not registered, the matter is treated as an online information and database access or retrieval service (OIDAR) and the OIDAR service provider is liable to take registration and pay tax.
\nQuestion 18 : When would it be construed that I have made a supply of services involving temporary transfer or permitting the use or enjoyment of any intellectual property right?
\nAnswer : Generally, the End User Licence Agreement (EULA) is the legal contract between a software application author or publisher and the user of that application governing the usage. The agreement is renewable and\/or could be amended from time to time. To find out as to whether there is an element of supply involved when software is delivered to its customer, the terms<\/p>\n
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\nQuestion 20 : What would be the tax liability on replacement of parts (no consideration is charged from a customer) under a warranty and whether the supplier is required to reverse the input tax credit?
\nAnswer : As parts are provided to the customer without a consideration under warranty, no GST is chargeable on such replacement. The value of supply made earlier includes the charges to be incurred during the warranty period. Therefore, the supplier who has undertaken the warranty replacement is not required to reverse the input tax credit on the parts\/components replaced.
\nQuestion 21 : An Original Equipment Manufacturer (OEM) has an obligation to provide repair services to their customers in the warranty period. This activity is outsourced by OEM to 'D', who bills the OEM for the services he provides to the customer. What is the tax liability of 'D'?
\nAnswer : 'D' is providing service to the OEM. GST is payable on the value of any supplies made by<\/p>\n
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\nQuestion 24 : In the scenario envisaged in previous question, the main branch is said to be entitled to ITC of the GST paid by the other branches. Thus, it is a revenue neutral situation. What are the valuation guidelines for such services?
\nAnswer : The second proviso to rule 28 of the CGST Rules, 2017 provides that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be de<\/p>\n
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