TaxTMI 
TaxTMI 
We are a Bangalore custom software development firm. Most of our clients our domestic. We follow a project based billing on quotes determined at the begining of the project(we do bill on actual hourly/monthly basis). We do not have any software products. We have been paying vat @4%. We are not registered with service tax. Our turn over is around 50 lakhs pa. We have recently been informed that we would need to charge both Service tax along with Vat due to the changes in serivce tax rules. Any clarifications on this new change would be appretiated. We are also considering starting a software product line. We seek clarifications on how billing of software products is to be taxed.
Chargiability of service tax on software development
25 Aug 2008 
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Service tax on software development applies to bespoke software, while packaged software is treated under excise duty instead.
Development of customised or customer-specific software is subject to service tax and also falls within the VAT net, whereas off the shelf packaged software is treated as a manufactured product attracting excise duty rather than service tax, while remaining subject to VAT under applicable provisions. (AI Summary)
Development of customised or customer-specific software is subject to service tax and also falls within the VAT net, whereas off the shelf packaged software is treated as a manufactured product attracting excise duty rather than service tax, while remaining subject to VAT under applicable provisions. (AI Summary)