Corporate groups often procure enterprise software licences centrally and share them across multiple entities. The GST treatment of such arrangements depends on the procurement structure and the distribution mechanism.
This article explains the GST implications of shared software licences.
Centralised Procurement
When one entity procures software licences for the group, the invoice is received by that entity. The entity can claim ITC on the licence fees. The cost and ITC must then be distributed to the entities that use the software.
Distribution Mechanisms
- ISD: If the software is a common input service, the ISD mechanism applies from April 2025.
- Cross-Charge: If the procuring entity sub-licences the software to other entities, the sub-licensing is a supply subject to GST at 18%.
Import of Services
If the software is procured from a foreign vendor, the Indian entity is liable to pay GST under RCM. The ITC on the RCM payment can be distributed through the ISD mechanism.
Sub-Licensing
Sub-licensing of software by one group entity to another is a taxable supply. GST at 18% applies. The recipient can claim ITC if eligible.
Compliance Steps
- Determine whether the software is a common input service.
- Use the ISD mechanism for ITC distribution.
- For sub-licensing, issue proper tax invoices.
- Pay GST under RCM for imported software.
- Maintain documentation of all distributions.
Conclusion
Shared software licences require careful GST structuring. The ISD mechanism applies for common input services, while sub-licensing triggers a separate taxable supply.
At Anuj Desai & Associates, we provide expert advisory services on GST for shared software licences and IT procurement. Our team can help you structure your arrangements efficiently.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.