GST Rate & HSN Code for Software and Software Services
Understanding the taxation framework for software and its services can be challenging, particularly when determining the appropriate HSN code and GST rate. This guide simplifies these complexities, ensuring clarity on software taxation in the digital landscape.
GST Applicability on Software and Software Services
The GST regulations for software supply and services include the following:
Classification of Software Supply
According to Schedule II of the CGST Act, software-related activities such as “development, design, programming, customization, adaptation, upgradation, enhancement, and implementation of information technology software” are considered services (Clause 5(2)(d) of Schedule II of the GST Act).
Conversely, pre-developed or pre-packaged software, delivered on physical storage devices or accessed via encryption keys, is treated as goods under HSN code 8523.
GST on Online Software Supply
The online distribution of software falls under a separate classification. Downloading or accessing software, including updates, is considered an OIDAR (Online Information Database Access and Retrieval) service under GST.
GST Exemptions for Software
Certain government-issued software is exempt from GST. Additionally, specific software types qualify for a Nil GST rate, depending on their usage and intended beneficiaries.
GST Treatment Based on Place of Supply
- Intra-State Sales (Within the Same State): GST is divided into CGST and SGST.
- Inter-State Sales (Across Different States): IGST is applicable.
Import of Software Services
Imported software falls under HSN Code 997331, classifying it as a service import. Importers are not required to file a Bill of Entry for software services. However, they must pay IGST under the Reverse Charge Mechanism (RCM), as per Notification 10/2017-IT (June 2017). Once the IGST is paid, the importer can claim Input Tax Credit (ITC), which is then included in GSTR-3B filings.
Export of Software Services
Software exports, including those supplied to Special Economic Zone (SEZ) units and developers, are treated as zero-rated supplies under GST, meaning no tax is applicable. However, exporters can claim input tax credit on expenses related to the provision of exported software services.
e-Invoicing for Software Services
For B2B software transactions, e-invoicing is mandatory for businesses with a turnover exceeding ₹5 crores to ensure compliance with GST regulations.
HSN Code and GST Rate on Software and Software Services
Understanding the applicable HSN codes and GST rates for software and software services is essential for businesses and individuals dealing in digital products. Below is a comprehensive list of HSN codes along with their corresponding GST rates.
HSN Codes and GST Rates for Software Products and Services
| HSN Code | Description | GST Rate |
| 49119910 | Hardcopy (printed) of computer software | 12% |
| 85232990 | Other media for recording sounds | 18% |
| 85238020 | Discs containing information technology software | 18% |
| 85238090 | Other recorded media | 18% |
| 85243111 | Discs with information technology software | 0% |
| 85244011 | Magnetic tapes containing IT software | 0% |
| 85249112 | IT software on discs or CD-ROMs | 0% |
| 99831 | Management consulting, IT, and related services | 18% |
| 998311 | Consultation services in finance, strategy, HR, marketing, operations, and logistics | 18% |
| 998312 | Enterprise advisory services, including PR consultancy | 18% |
| 998313 | IT guidance and maintenance services | 18% |
| 998314 | IT solution designing and formulation | 18% |
| 998315 | IT system hosting and infrastructure setup | 18% |
| 998316 | IT system and network management | 18% |
| 998319 | Other IT-related services, not elsewhere classified | 18% |
This table provides a clear classification of software-related products and services under the GST regime.
Is ITC Available on GST for Software?
The availability of Input Tax Credit (ITC) depends on whether the software is used for business purposes or personal use.
- For Businesses:
- Companies can claim ITC on GST paid when purchasing software for business operations.
- Example: A logistics company buying fleet management software or a design firm purchasing design tools can avail of ITC.
- For Consumers:
- Individuals purchasing software for personal use (such as video editing software or antivirus software for home use) cannot claim ITC, as it is not linked to business activities.
Frequently Asked Questions (FAQs)
1. What is the GST rate on software services?
The GST rate for most software services is 18% under HSN Code 99831.
2. Is GST applicable to software downloaded online?
Yes, software downloaded or accessed online is considered an OIDAR (Online Information Database Access and Retrieval) service and attracts 18% GST.
3. What is the HSN code for pre-packaged or off-the-shelf software?
Pre-packaged or off-the-shelf software is classified under HSN Code 8523, and it generally attracts 18% GST.
4. Is GST applicable to software exports?
No, software exports, including those to Special Economic Zones (SEZ), are zero-rated under GST, meaning no tax is payable. However, businesses can claim ITC on input expenses related to software exports.
5. Can freelancers providing software services claim ITC?
Yes, if a freelancer is registered under GST and provides taxable software services, they can claim ITC on software and related expenses used for business purposes.
6. How is GST charged on software imports?
Software imports fall under HSN Code 997331 and attract IGST under the Reverse Charge Mechanism (RCM). Importers must pay GST and can claim ITC on the tax paid.
7. Does GST apply to software sold with physical media (CD/DVD)?
Yes, software sold on physical media like CDs or DVDs falls under HSN Code 8523 and is subject to 18% GST.
8. Is e-invoicing mandatory for software businesses?
Yes, businesses with an annual turnover above ₹5 crores must generate e-invoices for B2B software transactions under GST regulations.
