Government tramps VAT rate on India Software Development

According to the latest news Bangalore State Government tramps VAT rate on India Software Development. The government has mutely compelled heave taxes on IT products and services. There are certain electronic items that state government has deleted form the list of Information Technology products and services taxable at 4% VAT rate. This enforcement by the government will hike up the price rates of the electronic products like Cell phone, multimedia systems and a wide range of telecommunication equipments. This list seems to include all kinds of the telephone products. According to the news the government has imposed almost 12.5% VAT rate service with effect from the 1st April 2006.

This hike from the house of the Government of would also create lots of negative impact on India Software Development and Software Outsourcing services. Government has classified these products and services as IT products. But the surprising issue is that these products are treated as IT products in other states oh India and will be taxed at 4% VAT charges. According to the news government listed some of the IT products with 30 broad categorizations to be taxed at 4% VAT that was to effect from 1st April 2006.

Though, this year (2006) at the time of the Budget work out, the State Government of Bangalore revised the list of these IT products and services. At the time of this classification the government deleted some of the products and listed two new products in the list of the IT products. These two products that are added are - MP3 Player and computer printer ribbon. Consequently, the recently added products are taxable at 4% VAT. But the products that are deleted from the list of the IT services will be charged VAT rate at 12.5% with effect from 1st April 2006.

Impact on India Software Development

One thing is sure that this hike in the product will definitely have impact on India Software Development as India is the country that is know for lower labor IT Outsourcing destination. This hike up in the price of the products will also lead the companies to increase the price of the products. Along with this Software service and BPO sectors will also be affected by this. It seems that hike in the prices of the services and products will definitely will be there. Still the hard ware like computer will not have any bad impact as it is going to be taxed at 4% only.

Surprisingly, the State Government has not notified the Legislature regarding these modifications in tax rates. This is the thing that is one of the requirements of the propriety. After this issue the MAIT (Manufacturers Association of Information Technology) has recommended the State Government to recondition the VAT charges on products and services removed from the Information Technology list to 4% tax rate.

Ultimately the whole issue indicates that India Software Development will have some problems with its international market because of this step of the state government as Bangalore is the IT Hub for India.