March 24, 2023
The hot topic that is trending in India is Goods and Services Tax (GST). GST will get implemented from 1st July 2017. GST embodies the principle of "one nation, one tax, one market", unifying the country's $2 trillion economies and 1.3 billion people into a common market.
Despite various tax rates of 5, 12, 18 and 28 per cent, and many exceptions, the new tax regime is aimed at eliminating the cascading tax structure, easing compliances and lowering the tax burden on consumers. From the government to small businesses, all stakeholders are anxious for a smooth rollout of the GST. The question that everyone is concerned about is, how and what influence will GST create on businesses.
Surely, it will have a great impact on everything from taxation structure, tax computation, tax credit, tax compliance to supply chain management, IT systems, accounting systems and much more. GST will surely affect every sector from retail to service and hosting is surely among it.
Are You GST Ready?
GST will bring in substantial changes in the business processes completely. The changes will majorly depend upon size, sector, and geography of the place from where the business is operated. These changes will need a proactive planning and a heedful action plan. IT system forms the foundation of an organization’s operating system and from its perspective, changes in tax is a huge affair. There will be a need to create new tax codes, conditions and to update the information of companies’ goods and services.
Clearly, for a successful implementation of GST, great and organized efforts are needed between tax, IT and other systems of the organizations. Looking at the number of changes, organizations are taking a careful look at the business processes, upgrading their systems and gaining a deep knowledge about the tax modules to be prepared for this big leap. The impact of GST on Hosting Services! Tax Rate: The prevailing service tax rate on IT services is 15%. However, the recommended revenue neutral rate is at 15–15.5%. Now as per the GST the rise in the percentage will be 18%.
The GST levied on the intra-State supply of goods or services by the Centre is Central GST (CGST) and that by the States is State GST (SGST). On inter-state supply of goods and services, Integrated GST (IGST) is collected by Centre. IGST is also applicable on imports. That means for intra-state which is Maharashtra is 9%(CGST) and 9% (SGST) separately, whereas for inter-state that is apart from Maharashtra it will be 18%. Cascading Effect of Taxes: Under GST, both the IT service providers and their clients will be eligible to claim full credit of GST. This is expected to eliminate the cascading effects of the present tax structure.
However, presently IT service providers can't claim the credits of quality including the assessment or deal charge spent on the setting the IT infrastructure. Also, services charged by an IT service provider to a client who is a broker is an expense incurred by the IT service provider. Change in Business Process: Presently most of the IT firms are registered with the Central Service Tax authorities. Billing and accounting tasks are usually carried out from the central location. But after the implementation of the GST, service providers are required to obtain registration for all the states, they have a customer in. Compliance: The model GST law recognizes at least 111 points of taxation which means IT firms who are providing services all over India will have to seek registration in as many as 37 jurisdictions that include 29 states, 7 union territories, and the center.
This basically means that IT companies will have to register and file compliance report at as many as 111 points. There are pros and cons to every change. GST is also among those! Adoption will take time but GST will definitely improve the tax system and structure of our nation. Though it will surely affect the way IT companies are working, internally. But more impact will be seen in the decision-making process of the customers due to the increase in the tax amount. Let's hope for the best!