TDS applicability in case of software payments to a foreign company

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This discussion clarifies the Tax Deducted at Source (TDS) implications for an Indian marketing agency paying monthly software subscription fees to a US-based company. The consensus is that TDS under Section 195 is generally not applicable if the foreign company has no Permanent Establishment or PAN in India and the payment isn't classified as royalty or technical services. Obtaining a Tax Residency Certificate (TRC) and filing Form 10F from the foreign company can help substantiate this position.

Chartered Accountant

Chartered Accountant (Querist)
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03 May 2025 One of my client is a Marketing agency based in India only he is liable for tax audit and paying 1.5 lakhs monthly for subscription fee to a software company based in US California. The foreign company has no Permanent establishment and PAN in India, what will be the TDS implications on such transactions?
Will filing form 10F and obtaining TRC from Foreign company will suffice for not deducting tds on this transaction?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 May 2025 TDS not applicable being non resident company.
Yes, obtain TRC.

Chartered Accountant

Chartered Accountant (Querist)
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03 May 2025 Thankyou for your reply sir, but won't it be applicable u/s 195 as foreign companies are also covered in it?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 May 2025 Section 195 TDS applicable in case of interest, dividend, royalty and fees for technical services and in case of income taxable in india.

Chartered Accountant

Chartered Accountant (Querist)
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03 May 2025 Sir, the payment of subscription fee to a software company won't be covered under technical services?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 May 2025 It won't be covered.
See the link.
https://www.scconline.com/blog/post/2024/02/28/del-hc-subscription-fee-income-not-classified-royalties-included-services-dtaa-and-income-tax-act-legal-news-scctimes/

Chartered Accountant

Chartered Accountant (Querist)
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03 May 2025 Thank you so much sir for the solution.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 May 2025 You are welcome...
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