07 August 2016
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
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