Dual Taxation Concept

[Guest]

An IT company selling software to our company raised the bill as follows:

Product Value - 100

Service Tax - 10.3

VAT - 4% on 110.30

On enquiry, they replied this is dual taxation concept. Service Tax and VAT both applies for software. Also i feel, since this is a technical service TDS to be deducted u/s. 194J. Please advice

[rishi mohan]

Sir, on purchase of software no tds shall be deducted while making the payment, but the tds u/s 194(J)  shall be deducted on installation charges.

[Sandeep Jain]

Since Information Technology Software Service was covered under Service Tax in May 2008, Service tax has become applicable on all software services. So even if it is a sale of a software product it is covered under Service Tax. Unfotunately Right to use is also treated as a Product under VAT and is leviable to VAT also. So while the common belief is that it is only one of the two taxes that is leviable. In software both are levied. Yes, there is a contention whether VAT is to be levied on 100 or 110.3. My view is that it is to be levied on 100 since VAT includes all duties in the selling price but not taxes and Service tax is a tax that occurs at the same point of time as VAT and so it should be levied on 100.

AI Summary

Dual taxation of software: service tax and VAT can both apply, with TDS required only on installation services. Dual taxation occurs where both service tax and VAT are imposed on software: service tax has been applied to software services since May 2008, while VAT treats the right to use software as a product. TDS is not deducted on the purchase price of software, but TDS under provisions applicable to technical or professional services applies to installation charges. There is a disputed issue whether VAT should be calculated on the pre-service-tax sale price or on the service-tax-inclusive amount, with a view that VAT should exclude contemporaneous service tax from its base.