Subject: Whether Software Licenses are Goods or Services under GST Law
This case study offers a legal opinion on the GST implications for software licenses, specifically whether they should be classified as goods or services, and how this affects GST rates, place of supply, and input tax credit (ITC).
- Software as Services (SAC 997331/9983):
Under Schedule II of CGST Act, the following software-related activities are treated as services:
- Temporary license/use of IPR (e.g., SaaS subscriptions)
- Customization, development, enhancement, or implementation of software
These attract 18% GST and are classified under SAC 997331 or 9983.
- Software as Goods (HSN 8523):
Pre-packaged or downloadable software (non-customized and with perpetual usage rights) is treated as goods under HSN Code 8523, also attracting 18% GST.
Example: Delivery via download link or physical media like a CD/USB with a permanent license key.
- Special Cases:
- Import of Software Licenses: Attracts GST under Reverse Charge Mechanism (RCM)
- Export of Software Services: Treated as zero-rated supply if all conditions are met
- Public Research Institutions: May avail concessional 5% GST under specific notifications
- Key AAR Ruling (SPSS South Asia Pvt. Ltd.):
Held that non-customized, downloadable software qualifies as goods, reinforcing that mode and intent of supply are key to classification.
- Input Tax Credit (ITC):
Available for software used for business purposes, provided the supplier is registered and the software is not used for exempt or personal purposes.
Conclusion:
Scenario | Classification | GST Rate |
Packaged/downloadable software with full rights | Goods (HSN 8523) | 18% |
Customized software or IT development | Services (SAC 9983/997331) | 18% |
Temporary IPR licensing | Services (SAC 997331) | 18% |
Export to SEZ/foreign client | Zero-Rated Supply | 0% |
This case clarifies that GST classification of software depends on the licensing model, customization, and delivery method. For businesses, getting this classification right is essential to ensure compliance, correct tax invoicing, and ITC claims.
