India’s IT Sector under the New Tax Regime GST
India is ranked as one of the biggest exporters of IT services to the world in 2025. The information technology (IT) industry has contributed largely to the nation’s growth and GDP. This sector has witnessed significant reforms taken in the previous years, and one of such reforms is the introduction of the Goods and Services Tax back in 2017. This article provides a complete guide on prospective Impact of GST on IT Sector.
Taxability of IT Services under GST
Under the previous tax regime, the rates of taxability of IT services varied, as previously, the tax structure in the country was not unified and therefore charged by the states/union territories and the central government separately. The tax had a cascading effect on the consumer and the supplier of the service back then. For example, software on CD, DVD, or hard disk used to be charged on multiple levels. Excise duty imposed for manufacturing of products, VAT for sale, and service tax for providing a service as software downloadable multiple times.
Such a complex tax structure is simplified and unified under GST as it is an indirect and destination-based tax. A destination-based tax refers to the one which is charged at the place where the goods are consumed or services are delivered, not at the place of origin. Software services by the IT sector attract tax at the rate of 18% under the GST and rates may increase as per the case of the applicability of the service.
| Products | Taxability under GST |
| Laptop, desktop PC, optical drives, RAM and Memory chips, hard drives, pen drives, and monitors, LED/LCD up to 32 inches | 18% |
| Monitors LED/LCD above 32 inches and laptop adapter | 28% |
New Compliance Cost After GST Implementation
As organizations require IT Software and Enterprise Resource Planning to manage the day-to-day business activities such as accounting, procurement, project management, compliance, and supply chain operations, the cost to upgrade such ERPs and software has increased due to GST implementation. Businesses have to incur extra costs to set up the systems to establish coordination between tax experts and technology teams.
Sometimes, companies sign contracts with IT service providers to install accounting systems and ERPs, and such contracts are signed for the long term, though due to GST implementation, companies incur extra costs to comply with the newer rules.
Export of IT Services under GST
The export of IT services is zero-rated under the GST and it is kept out of the taxability, though the Input Tax Credit will be allowed as a refund. A default rule applies in the case of export of IT services. As per the default rule, the place of supply is the location of the service recipient if the recipient’s address is not available.
The IT services that are covered under the default rule include software development, BPO operations, software consultancy, Etc. The default rule will apply to other services like software support, maintenance, and intermediary services as well.
IT Service Providers as Freelancers under GST
Freelancers providing IT services, including designing, app development, website designing, etc., paid the tax at the rate of 15% on the old tax regime in the country. However, after the GST implementation, the freelancing services came under the 18% tax rate slab.
However, the blogging freelancing services have not been clarified by the GST authorities yet as their taxability is not defined.
Apart from incurring extra compliance costs and technical upgrades, the GST has impacted the IT service sector a lot in a positive way. It has increased the market for the service providers as the tax regime is not less complex, not requiring separate registration in each state to operate inter-state trade.
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