The debate over whether computer software should be classified as a good or a service has been ongoing for years. The GST Act has provided clear guidelines to help businesses navigate this distinction, which is crucial for determining the correct tax treatment.
Classification of Computer Software under GST
Under the GST Act, computer software is divided into two categories: “normal software” and “specific software.”
Normal Software
This category includes pre-designed software that is available off-the-shelf, such as those sold in retail outlets or provided on physical media like CD-ROMs. Normal software is treated as a supply of goods under GST.
Specific Software
Specific software refers to software that is adapted or designed according to the specific needs of the consumer. This involves product development, design, programming, and customization. As such, specific software is classified as a supply of services under GST.
Computer Software Purchased Online vs. Non-Electronic Medium
- Computer Software Bought Online
- Software can be purchased directly over the internet.
- Buyers usually receive a link via email to download the software or it is sent as an email attachment.
- Companies may sell two types of software online: general software (off-the-shelf) and customized software.
- Customized software, developed to meet the specific requirements of the customer, is classified as a supply of services under GST, particularly in cases where the software is procured electronically from international companies.
- Computer Software Bought Through Non-Electronic Medium
- Software can also be procured through a non-electronic medium, such as physical CDs or DVDs.
- In these cases, the software often comes with an encryption key and is typically off-the-shelf.
- Such software qualifies as goods under GST law.
Conclusion
The classification of computer software as either a good or a service under GST depends on the nature of the software. Off-the-shelf software is treated as a good, while customized software falls under the category of services. Understanding this distinction is vital for businesses to ensure that they apply the correct tax treatment in accordance with the GST Act.
