GST Classification of Software Licenses

Subject: Whether software licences are goods or services under GST law

This case study offers a legal opinion on the GST implications for software licences, specifically whether they should be classified as goods or services, and how this affects GST rates, place of supply and input tax credit (ITC).

1. Software as services (SAC 997331 / 9983)

Under Schedule II of the CGST Act, the following software-related activities are treated as services:

• Temporary licence or use of IPR (for example SaaS subscriptions)
• Customisation, development, enhancement or implementation of software

These attract 18% GST and are classified under SAC 997331 or 9983.

2. Software as goods (HSN 8523)

Pre-packaged or downloadable software (non-customised, with perpetual usage rights) is treated as goods under HSN 8523, also attracting 18% GST.

Example: delivery via download link or physical media such as a CD or USB with a permanent licence key.

3. Special cases

• Import of software licences: attracts GST under the Reverse Charge Mechanism (RCM)
• Export of software services: treated as a zero-rated supply if all conditions are met
• Public research institutions: may avail concessional 5% GST under specific notifications

4. Key AAR ruling (SPSS South Asia Pvt. Ltd.)

Held that non-customised, downloadable software qualifies as goods, reinforcing that the mode and intent of supply are key to classification.

5. 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

This case clarifies that GST classification of software depends on the licensing model, customisation and delivery method. For businesses, getting this classification right is essential for compliance, correct tax invoicing and ITC claims.