ISODA On Budget 2013: Dual Levy Of VAT & Service Tax On Domestic Software Sales Remains Unaddressed

By Yogesh Gupta Mar 5th 2013
ISODA sees opportunities in this stable tax regime and investments in social sectors, but there are still some concerns on continuous high rate of inflation.

The union budget for the financial year 2013-14 has received varied response from industry experts and ordinary citizens alike. The same seems to be the case with the Infotech Software Dealers Association (ISODA), which feels that the budget is a mixed bag, both from the perspective of its association members and that of the IT industry in general. Biren Shah, the chairman of ISODA, says, “The budget has maintained status quo on current rates of tax rates for customs/excise/income tax/service tax. Since the industry is burdened by high incidence of taxation due to double taxation, we would have liked to see lowering of tax rates.” He, however, adds, “We see stable tax rates a positive for simplicity and planning purpose.”

ISODA, a pan-India association with 125 plus partner organizations, comprises of the software channel—distributors, VARs and systems integrators—selling to SMBs and enterprises across India. ISODA members, in entirety, contribute to the tune of 40 percent of total software sales in India, and hence the budget implications for this set of partners become vital for the Indian IT industry.

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Service Tax Woes

Getting into the details of the taxation structure, Shah is disappointed that dual levy of VAT and service tax on domestic software sales has not been addressed. The issue of multi-level TDS exemption on all IT Products and Services except Software has not been addressed either, he worries.

Another area that has been left unaddressed according to Shah is the industry's demand to clarify whether 100 percent input Cenvat credit would be available to the reseller when service tax is paid at the time of purchase of software for subsequent sale (trading).

Positive Initiatives Included

Coming to the positive side of the budget, Shah opines that the Tax Administrative Reform Commission is a good initiative to review tax implications. “We truly expect the commission to review the policy content and its practicality in implementation, and provide the feedback to enable businesses run with minimal disruption,” he says.

Also, ISODA is supportive of the government’s focus on innovation which includes setting up an Rs 200 crore fund for fuelling local innovations. “This will encourage the innovation ecosystem in the country. Additionally, the budget also brings in lot of positive initiatives for the important MSME sector with announcements on listing on MSME exchange (without IPO), non-tax benefits and no tax for MSMEs that move to large enterprise class. These are significant incentives for MSMEs to invest in growth and become globally competitive,” says Shah.

Additionally, the Service Tax Voluntary Compliance Encouragement Scheme 2013 will give amnesty to assessees who have not paid their taxes or filed returns. This is a welcome move for those dealers who were not aware of collection and payment of service tax on software products, says Shah.

Another addition to take heart from would be the New Section 90 which would specify and differentiate cognizable offences from non-cognizable offences. Section 91 is being introduced to provide for power to arrest under Service Tax law.

Direct Tax and More

Talking about direct tax and the likes, Shah says, “TDS exemption limit of Rs 30,000 per year has remained unchanged. The industry would have liked to see this limit being increased to a higher amount.”

Under Section 115A, the rate of withholding tax for royalties and fees for technical services payable to non-resident has been increased from the current 10 percent to 25 percent in the budget. “The increase in WHT rate will impact the industry on international payments to non-tax treaty countries. Since India has Double Taxation Avoidance Agreements (DTAA) with 84 countries, this increase may not have much impact for foreign suppliers registered with Indian tax authorities,” informs Shah.

The benefit of Advance Ruling Authority is being extended to resident public limited companies w.e.f. 1-3-2013. This will help in reducing litigation as every organization has to get its service tax registration updated, as per the new norms, says Shah.

On the whole, ISODA sees opportunities in this stable tax regime and investments in social sectors, but there are still some concerns on continuous high inflation resulting in unfavorable exchange rates and resultant higher prices of imported software. There seems to be no major announcement for the Indian software products industry, and in that sense, there are missed opportunities as well, sums up Shah at ISODA.

Yogesh Gupta is the Associate Editor of ChannelWorld India. Send your feedback to

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