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Sale of software on CDs

Taxes on sale of branded and custom-made software on CDs

Sale of software on CDs (whether branded or custom-made) will ordinarily attract i) VAT (if sold within the same state) or ii) Central Sales Tax (in case of an inter-state sale), as software sold on a medium is treated as goods. Note that if there is a service element/ contract related to the software sold (such as an extended warranty or an annual maintenance contract), then the transaction may be treated differently under tax law, and service tax may be applicable.

Taxes on sale of branded software

In addition to VAT or Central Sales Tax as discussed above, excise/ customs duty or service tax may be payable on sale of branded software on CDs. As per the discussion below, note that a seller of branded software can choose whether to pay excise duty/ customs duty or service tax on such software.

Excise and customs duty notifications: Government issued notifications no. 2/2009-CE and no. 80/2009-Customs for providing exemption to packaged software from levy of excise duty and CVD respectively, subject to certain conditions. One of the conditions was that the assessee must be registered to pay service tax.

Service Tax notifications: On February 27, 2010, the Government issued Notification no. 2/2010- ST and Notification no. 17/2010- ST which provided exemption from service tax to canned or packaged software subject to certain conditions, including payment of applicable excise or customs duty.


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