Royalty or License Fees

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This query is : Resolved

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This discussion clarifies whether payments made by software distributors or resellers to copyright owners are considered royalty or sales. Generally, fixed amounts or percentages per sale are treated as royalty, not sales, and typically don't qualify for presumptive tax schemes. Direct sales to end-users are usually considered sales, potentially falling under Section 44AD, but royalties or commissions from distributors require maintaining books of accounts.

Dipen

Dipen (Querist)
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14 July 2020 Hi,

In case of copyrighted software product , distributors/resellers pay a fixed amount/fixed % to the copyright owner for every sale. In this case fixed amount/fixed % on every sale will be in nature of royalty or sales? Also there can be multiple distributors for same copyrighted software product.

Also if royalty/sales can this fall under presumptive scheme?

Regards,

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2020 It will be in the nature of royalty. It will not fall under presumptive scheme.

Dipen

Dipen (Querist)
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14 July 2020 Thanks for the opinion

What if copyright owner sells directly to end users ? Then it will be license fees? How will that be taxed?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2020 Yes, if software is sold directly it will be treated as sale.

Dipen

Dipen (Querist)
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14 July 2020 Will the same apply if same is sold through a distributor or reseller? i.e Copyright owner to distributor/reseller and reseller to end user. Will this be sales?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2020 Yes this will be sales.

Spurto Consultancy Services

Spurto Consultancy Services (Expert)
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14 July 2020 If you are directly selling to user and charging the licence fees then you can show it as a sale and report u/s 44AD.
However if you are receiving royalty/commission from your distributor on every sale then it cannot be presumptive income. Books of Accounts have to be maintained.

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