TDS

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Sunil Kr. Sanganeria (Querist)
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26 May 2009 We have entered into an agreement with London based Company who provided us a software from which we can get the information of the Forex Market of the London. We pay some amount in every month. We deduct tax as per DTAA agreement with UK but now the Company says that Tax is not applicable to them and ask us to remit the full amount without deduction of Tax.

Please advice whether Tax applicable or not.

SUBRAMANYA H

SUBRAMANYA H (Expert)
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28 May 2009 if you are paying user licence fees to londan based co sec 195 will apply and you have to deduct TDS @ 10% Plus sucharge @ 10% on TDS and Education cess @ 3% on TDS AND Surcharge both totalling to 11.33%

Sunil Kr. Sanganeria

Sunil Kr. Sanganeria (Querist)
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01 June 2009 I want to know whether the payment will be covered under royalty or under Technical Services

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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27 July 2025 Regarding your query about payment to the London-based company for software access and whether it is covered under **Royalty** or **Technical Services**, here’s a detailed explanation:

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### 1. **Nature of Payment:**

* If the payment is for **use or right to use the software**, such payments generally fall under **Royalty** as per Indian Income Tax Act and the **India-UK DTAA**.

* If the payment is for **technical services involving transfer of technical knowledge, skill, or expertise**, then it may be classified as **Fees for Technical Services (FTS)**.

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### 2. **Software License Fee - Royalty or FTS?**

* **User License Fee for Software** is generally considered **Royalty**. This includes payments for the use or right to use software.

* However, if the payment is for **software development services or technical support**, it may be considered **FTS**.

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### 3. **Tax Deduction at Source (TDS) & DTAA:**

* Section **195** applies on payments to non-residents (like the London company).

* As per India-UK DTAA, the definition and taxability of **Royalty** and **Technical Services** are governed by the treaty provisions.

* Most DTAA agreements provide beneficial tax rates or exemption on certain types of income.

* Typically, **Royalty payments** for software are subject to tax (TDS) at a concessional rate under the DTAA (e.g., 10%).

* **Technical services** may also be taxable depending on the treaty clause.

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### 4. **Practical Steps:**

* Check the exact nature of services mentioned in the contract.

* Refer to the India-UK DTAA article for **Royalties and Fees for Technical Services**.

* Deduct TDS under **Section 195** at applicable treaty rate on gross amount.

* If the company claims exemption, request a **tax residency certificate (TRC)** and relevant DTAA exemption certificate to avoid TDS or apply for withholding tax certificate.

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### Summary:

| Payment Type | Likely Classification | TDS Applicability (under DTAA) |
| ---------------------- | --------------------------------- | ---------------------------------------- |
| Software License Fees | Royalty | Yes, usually @ 10% plus surcharge & cess |
| Technical Services | Fees for Technical Services (FTS) | Yes, subject to DTAA provisions |
| Pure Software Purchase | Capital Asset (non-royalty) | Possibly No TDS (depends on facts) |

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If you want, I can help you draft a formal communication to the London company clarifying TDS deduction under DTAA or guide you on how to apply for a lower withholding tax certificate.

Would you like that?

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