For months now, software resellers have been in a state of fix trying to figure out the exact computation of tax on software products. Several of them had even stopped billing for a short time because of the confusion prevalent in the business.

This despite the announcement in the Union Budget this year where the government exempted excise duty from packaged software. This change in the budget structure ensured that both excise duty and Countervailing Duty (CVD) is exempted from packaged software and will instead attract service tax on the licensed portion.

This opened a totally new area of confusion because distributors and resellers alike are clueless whether or not they should charge value added tax (VAT) and service tax on the domestic transactions of the packaged software, like they were doing earlier.

Vinita Bhatia

The biggest grouse partners have is that there is no clarity whether software can be categorized as goods or services. And if packaged software is categorized as service then ideally it should not attract VAT.

Needless to say, every partner is interpreting the law and the level of tax to be computed on the software component of any deal, to his own convenience or level of understanding. They are not ignorant of the perils of doing so. But they also know that they can't stop transacting business till such time as a clarification comes from the government.

For months now, Infotech Software Dealers Association (ISODA) has been trying to get the government's stand on the definition of software and what is the nature of tax liable on it. And for months, the petition has been getting postponed and is still awaiting verdict at the Chennai Court.

ISODA has made numerous representations to government bodies and trade associations to draw their attention to the fact that software comes in various forms and therefore there needs to be uniformity in pegging it under the appropriate taxation grid.

When DQ Channels started working on this subject for its cover story, what emerged is that the entire industry was more or less equally confused about taxation on software. Vendors, national distributors and their regional counterparts, software resellers, solution providers and even legal experts-none had any clear understanding on how software should be taxed. And bearing the brunt of this indecisiveness are the channel partners.

They can't seek help from distributors who have thrown up their hands in despair or from vendors who have steered clear of this game of passing of the buck. This is why most partners are doing business, levying taxes on software the way they think is right and hoping the bogeyman in the form of a tax official does not come knocking at their door.

This is hardly the best environment to do business in, especially in face of the meltdown which refuses to go away. But when the going gets tough, it is best to keep going.

Vinita Bhatia
vinitavs@cybermedia.co.in

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