TDS ON PURCHASE OF SOFTWARE
Finance Act 2012 has amended the definition of “royalty”.
The amendment in section section 9 (1) (vi) now defines ‘royalty’ as any ‘right
for use’ or ‘right to use’, a computer software (including granting of a
license), irrespective of the medium through which such right is transferred.
Hence purchase of software though dealer also would comes under the ambit of above
definition.
Since section 194J provides for deduction of tax at source
on payment made for royalty payment the payments towards purchase of computer
(technically right to use computer software) will be liable to tax deduction at
source under section 194J @ 10%
However sale of computer software involves a channel i.e.
from developer to distributor to dealer to end-user. To avoid tax
deduction at several levels, CBDT issued
the Notification 21/2012 dated July 1, 2012
As per the said notification, the tax deduction at source
(‘TDS’) will not apply on acquisition of software from another person, being a resident,
- if the
software is acquired in a subsequent transfer and
- the
transferor has transferred the software without modification and
- TDS
has been deducted under section 194J or 195 of the Income tax Act, 1961
(‘the Act’) on payment of previous transfer of software
Amended
situation of TDS on Software purchase
Based on above description, the following check-list will be
helpful in deciding about deductibility of tax on software purchase
|
Payments towards Standard Software i.e. without modification
|
Whether to deduct tax
|
Reason
|
|
Payment below Rs. 30,000
|
No
|
Section 194J provides for no deduction in case payment is below Rs.
30,000
|
|
Payment to a non-resident Indian
|
Yes
|
Tax is deductible in all cases and no exemption under Notification
21/2012 is available
|
|
Payment above Rs. 30,000 to resident where no declaration under
Notification 21/2012 is given by the transferor
|
Yes
|
Declaration is mandatory under Notification 21/2012
|
|
Payment above Rs. 30,000 to resident where declaration under
Notification 21/2012 is given by the transferor
|
No
|
Declaration is mandatory under Notification 21/2012
|
