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India’s software industry calls for cuts to red tape

Software industry lobby group iSpirt has called on the Indian government to ease the administrative burden of complying with rules related to taxes and trade

India’s software industry lobby group, iSpirt, has called on the Indian government to ease the administrative burden of complying with rules related to taxes and trade.

In a letter signed by 121 software companies and addressed to Indian IT minister Ravi Shankar Prasad, iSpirt said it had repeatedly asked for provisions related to Softex forms for international trade and TDS (tax deducted at source) to be removed, but to no avail.

The Softex form that Indian software firms currently file is mandated by the Reserve Bank of India to measure the value of India’s software exports.

After the introduction of the goods and services tax (GST), iSpirt said this information is already being captured through the GST Network (GSTN) system.

“The Softex form puts an unnecessary burden on software product companies for compliance and a substantial extra cost of compliance,” said iSpirt, adding that software valuation is also not required because the pricing mechanisms of software products are similar to those of physical products.

As for the TDS, iSpirt noted that the requirement for buyers to deduct tax at prescribed rates from their purchases and deposit that amount into their tax accounts hinders the trade of software digitally.

“If a business wants to buy any physical product online, it can do it without deducting any TDS,” it said. “However, if a business buys a software product online, a TDS of 10% is required.”

The TDS provisions were introduced in India’s 2012 Budget, mainly to check the loss of tax income when software was procured from overseas. However, it was also imposed on software bought from Indian companies.

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Ganesh Subramanian, chief financial officer of Tally Solutions, said that for Indian software products to change the country’s economic trajectory, software buyers, suppliers and their ecosystem must be valued.

“The TDS laws today prevent this and must be changed to see more innovative software makers confidently create and sell their products in India,” he added.

Sudhir Singh, fellow at iSpirt, said both TDS and Softex requirements are hurdles for trade channels, and stand in the way of technology adoption by micro and small and medium-sized enterprises.

“After the GSTN system became central to capturing all sales and purchase data, these provisions are totally redundant,” he added.

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