Service Tax on Retail Sale of Packaged Computer Software Exempted
Indian Finance Ministry in December 2010 exempted service tax on retail sale of packaged computer software.
The Indian Finance Ministry in December 2010 exempted service tax on retail sale of packaged computer software with the purpose of addressing the problem of double taxation on it. India’s 10000-crore software retail industry and the customers who will now have to pay less for software such as Microsoft, SAP, Oracle, Norton antivirus and Adobe were much relieved by the measure. The objective of initiating such exemption is to streamline taxation of packaged software. The 10% exemption on service tax is conditional to payment of excise on the retail price if the software has been manufactured or imported.
The Indian software industry had been lobbying hard to bring in the exemption and had been pushing the government to classify packaged software as goods and not service. The government had so far considered packaged software as both goods and service when a license was sold. Packaged software comes with a license that allows the buyer legal use of the software.
The 2008-09 Budget had made payment of service tax mandatory on packaged software by broadening the definition of software to include the acquisition of right to use packaged software. The licence that came with a CD loaded with the software led to double taxation and hit hard the retail industry that operates on thin margins of 4-5%.