Goods and Service Tax( GST) the ultimate hook to unify and simplify the Indian tax structure still remains a hot cake for debate among the public. The lack of clarification and detailing among GST structure resulted in endless doubts and uncertainties. Soon to complete its first anniversary, people are left in dismay.
Every industry falls under the blanket of GST impact, however, the IT sector with services such as software development, mobile app development, website design and more, is no more indifferent. The impact is huge and here in this article, we tour how GST plays its role in Odoo services.
The prevailing service tax rate on IT services is 15%. However, the recommended revenue neutral rate is at 15–15.5% and the standard rate is expected to be around 17–18%. Therefore, the cost of IT services will elevate, especially for end customers who do not usually claim the tax input credit.
Under our current tax structure, the sale of packaged software is entitled to both VAT (approximately 5%) and service tax (15%). The VAT on sales is directed to the state government whereas the service tax on service follows the central government. There are also cases where along with the VAT and service tax, excise duty is also applied due to lack of clarity from the government. However, it is expected that once the GST is implemented, the current average tax rate of around 25–35% shall come down to around 18–25%.
Currently, IT service providers can’t claim credits for quality including the assessment or deal charge spent on setting the IT infrastructure. Also, services charged by an IT service provider to a client who is a broker is an expense incurred by the IT service provider. Under GST, both the IT service providers and their clients will be eligible to claim full credit of GST. This is expected to eliminate the cascading effects of the present tax structure.
Under GST, which is a destination-based tax, the tax is collected by the state where the goods or services will be consumed. Most IT companies are registered only with the Central Service Tax authorities and usually all billing and accounting tasks are carried out from a central location. Under the GST regime, service providers are required to obtain registration for all the states that they are catering to, i.e. all states that they have customers in. This is to be done so that the SGST (State Goods and Service Tax) component of IGST (Integrated Goods and Services Tax) is rendered for respective states. IT service providers will, therefore, have to bifurcate their services and bill their customers based on a location of consumption.
Here I am explaining how we can configure this GST in Odoo.
- Odoo already has a mature tax system where we can configure different type of taxes.
- First, we have to create these taxes.
- Go to Accounting> Configuration> Accounting> Taxes
- Create a new tax for Intra state sale Eg: GST 5% (SGST 2.5%+ CGST 2.5%.