Installation of software

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santosh kumar aditya

santosh kumar aditya (Querist)

31 December 2015 Under which head i should treat installation charges of software ?

Please answer.

Ankur Singhal

Ankur Singhal (Expert)

31 December 2015 From Finance Act 2013,
Software expense is now a revenue expenditure, it can not be capitalized
Hence the software charges should be t/f to P&L a/c

CA Pallav Singhania

CA Pallav Singhania (Expert)

31 December 2015 It is worth to note that rates of depreciation given in Income Tax Rules provide that computers including computer software are eligible for depreciation @ 60%.

But explanation 4 inserted by Finance Act, 2012 to the definition of royalty under section 9 clarifies that payment made towards purchase of computer software is royalty. Income Tax Rules cannot override the Income Tax Act.

Thus, amount paid to obtain computer software shall not be added to the block of assets of computer.

Therefore, to conclude with amount paid for purchase of computer software (including installation charges) is royalty and shall be allowed as deduction under section 37(1) as revenue expenditure subject to the provisions of section 40(a)(i) and section 40(a)(ia).

Ankur Singhal

Ankur Singhal (Expert)

01 January 2016 Yup correctly defined by the expert.

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