Understanding Software HSN Codes: Importance, Examples, and More

Discover what software HSN codes are, their importance, categories, examples, and how they affect tax compliance in our comprehensive guide.
APPLY
Business Loan
APPLY
3 min
26 November 2024
In India, the Goods and Services Tax (GST) system necessitates businesses to classify their products and services using specific codes. One such classification is the Harmonized System of Nomenclature (HSN) code, which is an international system used to classify goods. Software and related services have their own set of HSN codes, which determine how GST is applied to them. Understanding the software HSN code is vital for businesses involved in the sale or development of software, as it ensures accurate tax computation and compliance with regulations. This article explains the significance of software HSN codes, their importance, and how GST is applied to them.

What is software HSN code

An HSN code for software is a unique identification number assigned to software and software services under the GST system. The HSN code categorizes various software products and services, ensuring they are taxed appropriately according to the GST framework. Each software category, be it packaged software, custom software development, or software services, has a distinct HSN code.

In the GST regime, businesses need to mention the appropriate HSN code while filing GST returns for software-related products or services. This ensures clarity and avoids errors in tax calculations, preventing legal issues for businesses.

HSN code and GST rate on software and software services

The GST rate on software and software services depends on the classification of the software. Software can be categorised into two types: packaged software and custom software development. The GST rate varies based on the nature of the product or service provided.

Below is a table outlining the GST rates for software and related services:

Type of Software/ServiceHSN CodeGST Rate
Packaged Software (Standard Software)852318%
Custom Software Development Services998318%
Software Licensing Fees999318%
Cloud Computing Services (Software as a Service)99831518%


Importance of HSN codes for software

HSN codes play a crucial role in the GST system by ensuring that businesses are correctly classified and taxed based on the goods and services they supply. The importance of HSN codes for software cannot be overstated, as they help to:

  • Facilitate accurate tax calculation: Using the correct HSN code ensures that businesses apply the correct GST rate. Incorrect classification can lead to either underpayment or overpayment of taxes, which can result in penalties.
  • Streamline GST filing: By adhering to the HSN classification, businesses can easily categorize their transactions while filing GST returns, which helps in preventing errors and delays.
  • Promote transparency: HSN codes bring uniformity and transparency to the tax system by ensuring that businesses follow the same classification criteria, thus maintaining consistency across the industry.
  • Compliance with legal requirements: For businesses in the software industry, using the correct HSN code ensures they comply with tax regulations and avoid legal challenges related to misclassification of products and services.
By properly using HSN codes, businesses can avoid complications related to tax filing, allowing smoother operations and better financial management.

Categories of software HSN codes

Software and software services are classified into several categories under the HSN system. Understanding these categories helps businesses select the right HSN code and apply the correct GST rate. The main categories of software HSN codes include:

  • Packaged Software (Standard Software): This includes software sold as ready-to-use products, such as operating systems, office suites, and other software programs. These typically fall under HSN code 8523, and the GST rate is 18%.
  • Custom Software Development Services: These are software products developed for specific clients based on their requirements. The GST rate on these services is also 18%, and they generally fall under HSN code 9983.
  • Software Licensing Fees: This includes the charges for the right to use software for a certain period. The applicable GST rate is 18%, and it is categorized under HSN code 9993.
  • Cloud Computing Services (Software as a Service, SaaS): Cloud-based software services, such as SaaS, are provided over the internet. The GST rate on these services is also 18%, and they are classified under HSN code 998315.
  • Maintenance and Support Services: These services are related to the upkeep and updates of software. They are generally taxed at 18%, under HSN code 9983.
Each category has its own set of guidelines and compliance requirements. Understanding these categories helps businesses avoid mistakes when filing their GST returns and ensures the correct application of tax rates.

Examples of software HSN codes

Below are some common examples of software HSN codes, which are essential for businesses to classify their products and services accurately:

Software/Product TypeHSN CodeGST Rate
Operating System Software852318%
Database Management Software852318%
Software for Data Processing852318%
Custom Software Development998318%
Cloud Software (SaaS)99831518%
Software Maintenance Services998318%
Enterprise Resource Planning (ERP)852318%


Conclusion

Understanding software HSN codes is essential for businesses involved in the software industry. These codes are integral to classifying software products and services, ensuring accurate tax calculation, and complying with the Goods and Services Tax (GST) system. By correctly applying the appropriate HSN code, businesses can avoid legal issues, streamline tax filing, and maintain transparency in their operations.

As the software industry continues to evolve, keeping abreast of any changes in HSN codes and GST rates is essential for smooth business operations. If your business deals with software products and services, it is crucial to understand the correct classification and taxation rules. For businesses looking for financial support to handle their GST and tax-related expenses, a Business Loan can provide the necessary capital to ensure smooth compliance and operations. By keeping up with HSN codes and related tax regulations, businesses can ensure seamless growth and avoid costly errors in tax filings.

Frequently asked questions

What is HSN code 998314 for?
HSN code 998314 is used for "Information technology (IT) consulting and support services." It covers services related to IT systems design, troubleshooting, and advisory services. The applicable GST rate under this code is generally 18%.

What is the HSN code 997331 used for?
HSN code 997331 applies to "Licensing services for the right to use intellectual property and similar products." This includes software licensing for use or distribution. The standard GST rate for services under this code is 18%.

What is the HSN SAC code for software?
The HSN SAC code for software services is 9983. It includes custom software development, maintenance, and support services. For packaged software, the relevant HSN code is 8523. Both categories typically attract an 18% GST rate.

What is the HS Code for software?
The HS Code for packaged software is 8523, covering software distributed on physical media like CDs or USB drives. This code does not apply to electronically delivered software, which is classified under service related HSN codes like 9983 or 998315.

Show More Show Less

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.

  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements, and even get quick customer support—all on the app.
Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Related videos