Packaged Good: Reboot for shrink-wraps

Government Decides To Exempt Packaged Software From 8% Excise & Countervailing Duty

IT COMPANIES, BOTH INDIAN AND MNC, such as Microsoft, Oracle and Infosys Technologies, have reasons to cheer. The long-standing issue of packaged software, being double taxed often, has been partially corrected. Packaged software, essentially a software available on CD attracting a 8 % excise and countervailing duty, will now be exempt from tax.
    The measure would make packaged software cheaper for individuals and companies adopting IT programmes. The jury is, however, still out on the exact impact of the measure with most manufacturers saying that they have to see the fine print before calculating the impact.
    "It appears that only service tax will be applicable now, which is fine. But we still need to study the document," Mr Raju Bhatnagar, vice-president, Nasscom, said. A Microsoft India official said company was satisfied with the partial tax exemption on software. "The IT industry had expressed considerable difficulties with regard to the applicability of duties and taxes on software. To resolve it, the FM has proposed partial exemption from duty on software," a statement from Microsoft India said.
    Earlier, packaged software was being taxed twice in many instances, especially after the introduction of the service tax in the last budget. "Sometimes, software was being treated as goods when it was on a CD. In other cases, it was being treated as services, when available for use electronically through a password. And wherever there was a combination of the two, it was being taxed twice, Mr Bhatnagar said.
    OEM suppliers such as Dell, HCL Infosystems, Lenovo and HP were also facing issues of double taxation because they were pre-loading software such as MS Windows on the computers they shipped. "The clarity on dual levy of software is a welcome move. However, we continue to study and analyse the notification for better clarity and implications," said Sameer Garde, country general manager, Dell India.
    According to Rajesh Jain, head - information, communication, entertainment, KPMG, the move will benefit those outside SEZs and STPIs and will be tax-neutral for those inside them. Companies inside STPIs and SEZs don't attract excise duty, thus, the move will be tax neutral for them.
    On the other hand, MAIT, the industry body for IT hardware said the issue of state governments' levying VAT on 'software' already treated as 'service' remains unresolved. HCL Infosystems too voiced its concern, saying the demand for a 100% depreciation on financing of IT equipment was still unmet.
    At the same time, the government's proposal to increase the allocation for the ICT mission to Rs 900 crore is going to help the IT hardware and software spends in the country. The allocation of Rs 2,113 crore for IITs and NITs, which includes a provision of Rs 450 crore for new IITs and NITs, along with the Unique ID project will help the IT sector, said companies like NXP and Infosys.
    While companies like Patni and AMD were disappointed with the increase in MAT by 5%, the government's road map to integrate all taxes under the GST met with a positive response. PC makers are awaiting the GST eagerly, as it would remove procedural hassles for them.
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