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As Per notification no. 21/2012 dated 13.06.2012 no deduction of tax shall be made on the following Payment by a person (hereafter referred to as the transferee) for the acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-

(i) The software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,

(ii) Tax has been deducted-

(a) Under section 194J on payment for any previous transfer of such software; or

(b) Under section 195 on payment for any previous transfer of such software from a non-resident, and

(iii) The transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.

To provide major benefit to the software sector, the government of India has decided to do away with complex multi-level system of Tax Deduction at Source (TDS) with effect from July 1 2012 under Section 194J.

CBDT has released notification number 21/2012 dated 13.06.2012 in this regard with few conditions as mentioned above.

The term "software" is not defined under the provisions of the Act. Generally, the term "software" is understood to mean as computer software.

No TDS u/s 194J on Payments for Software Purchase

Computer Software

As per Explanation 3 to section 9 (1) (vi) of Income Tax Act, 'Computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.

Information technology software

As per Notification No. 18/2008-S.T., dated 10.05.2008

'Information technology software' means any representation of instruction, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment. (Section 65 (53a) of Finance Act, 1994 as amended)

However the scope of this notification is limited to standardized software's only. This Notification will not be applicable on Customized/ specialized software's.

The benefit of above notification would not be available if payment is made for software which is a specialized one and exclusively custom-made to cater to the needs of an individual client. These are typically referred to as "unbranded software";

Format of Declaration for Non-Deduction of TDS

..................Company Name
.................. Address


To Whom Soever It may Concern

  1. The Permanent Account No. Of our company is................
  2. We are resident of India as per section 6 of the Income Tax Act 1961.
  3. Software is purchased by us and we have deducted TDS under Section 194J/195 of Income Tax Act 1961, on Payment for previous transfer of such software.
  4. Software is Purchased from Distributor, we have collected declaration from Distributor about non- deduction of TDS as per the said notification.
  5. We are reseller of software and not Original developer.
  6. We are transferring software without any modifications.
  7. We are therefore eligible for exemption under Section 197A (1F) read with CBDT notification no. 12/20212 dated 13.06.2012.
  8. Information provided above by us is true and correct.

Best Regards

..........................Company Name

Format of Declaration as given above is not a standard format by any law or as per Income Tax Act, 1961. It can be change or modify as per necessity by the company who is transferring software without any modification to another company/ organization.

Disclaimer: The purpose of the article is to enlighten the readers with the above-mentioned Subject so they can understand and follow the learning's of these notifications. Under no circumstances, the author would be held liable in any way for any damage arising from using this article.

The author can also be reached at casharmaamit1@gmail.com

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Category Income Tax, Other Articles by - CA AMIT KUMAR SHARMA