Tax Services Office
April 3rd, 2010
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Question: Post Budget 08, on Customized software sold in India is VAT AND Service tax applicable? For eg ERP software?
ERP software has a prebuilt frame work which is installed on Customer’s PC from CDs. Based on customer’s business process we do customization work at our office and certain amount of customization work at clients, premises.
The Invoice is raised as supply of ERP Software. How do we minimize tax burden on customers?
Answer: All software is VAT chargeable. Pl see the circular released by Finance ministry based on Supreme Court decision.
Circular No. 81/2/2005-ST
7 th October 2005http://www.servicetax.gov.in/circular/circular-05/st_circ_81-2k5.htm
In the case between TCS and Andhra Government, the supreme court held that VAT is chargeable on all the software products sold on any media be it branded, customised or otherwise. Even products sold over the internet attract this. Internet is the media on which the software is sent.
Now as to repairing and maintenance of the software it is service taxable like any other repair and maintenance job.
Charge 4% VAT on all sold software and 12% service tax on software services. In case of packaged software, you might have to pay duty of 12% (hiked from 8%). That makes all the software on par whether customised or otherwise and would amount to about 12%. Maximise your input credits in both the cases for better gain.
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