09 June 2022
Taxability and classification with respect to Computer software has always been a litigious issue since the erstwhile service tax regime. However, the Goods and Services Tax Act has to a huge extent clarified the position to be adopted with respect to procurement of computer software.
Clarification provided by Government on classification of computer software:
Softwares are categorized as ‘normal software’ and ‘specific software’. Normalised software is mass market product generally available in packaged form off the shelf in retail outlets. Its a pre-developed or pre-designed software which is supplied in any medium/storage (commonly bought off-the-shelf) or made available through the use of encryption keys. Such softwares are treated as a supply of goods.
Specific software is tailored to the specific requirement of the customer and is known as customized software. It includes Development, design, programming, customization, adaptation, upgradation, enhancement, Upgradation and implementation of information technology software or permitting the use or enjoyment of any intellectual property right. Hence it shall be treated as supply of services.
Thus, basis the aforesaid clarifications, it can be concluded that if a computer software is procured off-the-shelf or made available through encryption keys, then the same qualifies to be supply of goods. However, in any other case, supply of computer software is classified as supply of services under the Goods and Services Tax Act.
How to Classify a Computer software bought over the internet and a Computer software bought through non-electronic medium
| Computer Software bought over the internet | Computer software bought through non-electronic medium |
| 1. Computer softwares can be procured online, i.e. directly over the internet | 1. Computer softwares can also be procured through a non-electronic medium, i.e. other than over the internet |
| 2. The buyer usually receives a link via e-mail through which the software can be downloaded or the software is sent as an e-mail attachment | 2. These are usually available in a CD or DVD format wherein the buyer has to install the same in its system and operate. |
| 3. In case of online procurement, companies sell two kinds of software, - a general software and - a Customised software which is developed as per the specific requirements of the customer As a customised software is tailored as per the pre-determined needs of the customers, such softwares qualify as supply of services in accordance with Sl. No. 5 (2)(d) of Schedule –II of the GST law. Majority of the computer softwares which are procured electronically from International Companies are customised softwares, hence they are classified as supply of services. However, in case the computer software happens to be a general software or a one which is commonly bought off the shelf, then the same qualifies as supply of goods under the GST law. |
3. In such cases, the computer software is available alongwith an encryption key or is a type of software which is generally bought off the shelf. Thus, such computer softwares qualify as goods under the GST law |
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The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.
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