India has the potential, talent and the will to become the next software products hotspot in the world, provided the government is ready to offer required regulatory support, said Tejas Goenka, Managing Director, Tally Solutions, a business management software provider.
The primary requirement is to recognise ‘software products’ as a separate category both under the HSN code (Harmonized System of Nomenclature, a 6-digit uniform code used for the classification of goods globally) and the SAC code (Service Accounting Code, a unique code provided for recognition, measurement and taxation of services), he said.
“Such classification will help provide clarity and appropriate incentivisation for the industry,” Mr. Goenka pointed out in an interview.
Currently, off-the-shelf software is being classified as goods and other kinds of software are classified as services, creating ambiguity about software products that are delivered virtually, Mr. Goenka observed.
He also pointed out that income tax rules do not distinguish products from services and so TDS at 10% is applicable on the sale of software versus TDS of 0.1% applicable on goods.
“Sales and distribution of software products under the current classifications are difficult and financially unviable. Therefore, a correction is imperative to spur growth for the domestic sale of software products, especially for smaller businesses,” Mr. Goenka urged.