According to Section 65 (105) (zzzze), any service provided or to be provided to any person, by any other person in relation to information technology software, including—

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,

(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software,

(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software

(v) acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and the right to use software components for the creation of and inclusion in other information technology software products

(vi) acquiring the right to use information technology software supplied electronically, is a ‘taxable service’.

According to Section 65 (53a), “Information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.                 

Software consists of carrier medium such as CD, Floppy and coded data. Softwares are categorized as “normal software” and “specific software”. Normalised software is mass market product generally available in packaged form off the shelf in retail outlets. Specific software is tailored to the specific requirement of the customer and is known as customized software.

Packaged software sold off the shelf, being treated as goods, is leviable to excise duty.

IT software services provided for use in business or commerce is covered under the scope of the service. Said services provided for use, other than in business or commerce, such as services provided to individuals for personal use, continue to be outside the scope of service tax levy. Service tax paid shall be available as input credit under Cenvat credit Scheme.

Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically is covered within the scope of the IT Software Service.

Service provided in relation to advice, consultancy and assistance on matters related to IT software shall be leviable to service tax under the IT software service.

(a)  Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/-  (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b)  Services provided to the United Nations or International Organisations

(c)  Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d)  Services which are exported as per ‘Export of Services’ Rules

(e)  Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f)  Services provided to Reserve Bank of India

(g)  Out of total value of service provided proportionate value of goods and material provided by the Service Provider