GST Rate & HSN Code for Software and Software Services

The HSN code for software services serves as a universal language for trade, enabling businesses to navigate the complexities of cross-border software services transactions efficiently. It enhances transparency, simplifies taxation, and ensures that the appropriate duties and tariffs are applied.

Adhering to the HSN coding system contributes to a more organized and harmonized global trade environment for software services. Let’s find out more about HSN code for software development and the applicable GST rate.

What is Meant by HSN Code for Software Services?

HSN Code is a standardized system for classifying goods and services into various categories. It is used for classifying services for taxation and payment.

HSN Code for software services is used to categorize software-related services. These services are categorized under Group 99831 of SAC codes pertaining to information technology services.

GST Applicability on Software and Software Services

GST is applicable to various software services such as supplying software in various formats, supplying them online, exporting services, or creating e-invoice. Here is the detailed breakdown of GST applicability on all the software services and the ones exempted from GST below:

• Software Supply in Various Forms: According to Schedule II of the CGST Act, tasks like “development, design, programming, customization, adaptation, upgradation, enhancement, and implementation of information technology software” comes under the services supplied, (No. 5 (2)(d) of Schedule –II of the GST law). On the other hand, when the pre-developed software is delivered via any medium, storage, or encryption keys, it will be considered as goods supply falling under 8523 heading.
• Online Software Supplies: Providing computer software online has a unique classification. Accessing and downloading software with updates is considered as an OIDAR (Online Information Database Access and Retrieval) service. Therefore, any service related to software provision will be headed under an OIDAR service.
• Exemptions: Specific software like the one issued by the government is exempt from GST. Moreover, specific types of software have a 0% GST rate depending on the usage and beneficiaries they are serving.
• Supply Place: In-state

In-State Sales: When both the supplier and receiver are in the same state, then CGST and SGST are applied.

Interstate Sales: When the supplier and receiver are present in different locations, then IGST is applied.

• Software Services Import: As the software imported comes under HSN Code 997331, it is considered a service import. Businesses that import software do not need a Bill of Entry. But they need to pay the required IGST on a Reverse Charge Mechanism (RCM) basis, as Notification 10/2017-IT from June 2017.
• Software Services Export: Software exported to Special Economic Zone (SEZ) and developers are 0% rated within GST, implying the tax payment is not necessary. However, exporters could claim input tax credit upon all resources utilized to develop export services.
• Invoicing and e-Invoicing: e-Invoicing is compulsory for business-to-business software transactions and firms having a turnover of more than INR 5 crore.

HSN Code and GST Rate on Software and Software Services

HSN code for software development services covers plenty of services and each service has a different code and GST rate.

For example, discs with information technology software has 85243111 HSN code and it has a 0% GST rate. Here is the complete list of all software services along with their HSN codes and applicable GST rate.

Input Tax Credit Availability on Software Services GST

Yes, Input Tax Credit is available on software services GST for businesses who use software for operational activities. However, those using this software for personal use cannot claim Input Tax Credit.

• For Businesses: Businesses could claim Income Tax Credit when they are buying software for operational activities like graphic designing software for a designing firm.
• For Consumers: Any person buying software for their personal usage such as video editing software or antivirus cannot claim Income Tax Credit because it is not related to any business activity.

HSN Code for Software Services for GST Software Users

GST software can be used for paying GST on software-related services. For example, it helps you to find a taxable base for software services after considering any exemptions in accordance with GST compliance and regulations. This will ensure you are paying the correct tax amount according to the HSN code applicability.

Additionally, GST software can also track software services GST-related tasks transactions and import details directly when you file GST returns. This assists in simplifying GST return filing and reducing data discrepancies.

Conclusion

The Harmonized System of Nomenclature (HSN) code for software services plays an important role in classifying and identifying these services in international trade. It delivers a standardized system that facilitates smooth communication across borders.

Software services are categorized under specific HSN codes based on their nature and characteristics, allowing for accurate documentation and streamlined regulatory processes.

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