Tds applicability on foreign remittances to non resident
This query is : Resolved
15 February 2016
My client, resident Indian, wants to pay to a non resident situated at Spain for Purchase Commercial single License for usage of Software of USD 4000.The Software is used for Designing of Jewellery. ALso the Non resident has no Permanent establishment, PAN NO and no TRC.
1. Now Whether TDS is applicable on above payment or not?
2. If applicable then at what rate?
3. If not applicable then in Form 15CA and 15CB what reason has to be given for Non Deduction of TDS?
1. Now Whether TDS is applicable on above payment or not?
2. If applicable then at what rate?
3. If not applicable then in Form 15CA and 15CB what reason has to be given for Non Deduction of TDS?
15 February 2016
On purchase of software from a non-resident TDS (Royalty)shall be deducted under section 195 at the rates in force. (i.e. @ 25% as provided in section 115A or if relevant DTAA provides lower rate than that rate shall apply instead of 25%) -
15 February 2016
As per Judgment of Delhi High Court in the case of M/s Infrasoft Ltd (0214) 220 Taxmann 273, purchase Software License is not "Royalty" And therefore and as per Supreme Court Judgment in case of Tata Consultancy Services, the Software is to treated as "goods" as used in Article 366 (12) of the Constituion of India is very wide and includes all types of movable properties whether tangible or tangible.
Accordingly payment on Purchase of Commercial Single License for using Software is not Royalty and therefore TDS is not applicable.
After looking into above case laws please comment
Accordingly payment on Purchase of Commercial Single License for using Software is not Royalty and therefore TDS is not applicable.
After looking into above case laws please comment
27 July 2025
Thanks for sharing the details and the references, this is a classic and nuanced issue related to **TDS on payments to non-residents for software licenses**.
---
### Let me break down the points and legal precedents you mentioned:
---
### 1. **Whether TDS is applicable on the payment for Commercial Single License software to non-resident?**
* **Section 195 of Income Tax Act** requires deduction of tax at source on payments made to non-residents, including payments by way of royalty or fees for technical services.
* The Indian tax authorities often treat payments for software licenses as **Royalty** under Section 9(1)(vi) (Income Tax Act), leading to TDS liability.
* However, **Supreme Court ruling in Tata Consultancy Services Ltd.** (TCS) \[245 ITR 401 (SC)] held that payment for purchase of software which is a "goods" transaction is **not royalty**.
* The **Delhi High Court in M/s Infrasoft Ltd.** also held that purchase of software license is not royalty, as software is treated as goods (movable property).
* Therefore, **payment for outright purchase of software license (commercial license)** without any transfer of copyright or right to reproduce or distribute is **not royalty**.
---
### 2. **So, does TDS apply?**
* Since it’s not royalty or fees for technical services, **Section 195 TDS is not applicable** on the purchase price of the commercial software license itself.
* However, if the payment includes any **maintenance fees, technical support or services**, that part may be subject to TDS under **Section 195** as fees for technical services or royalty.
* In your case, it is a **one-time purchase of a commercial single license for USD 4000** — likely no TDS.
---
### 3. **If TDS is not applicable, what to mention in Forms 15CA and 15CB?**
* Form **15CA** requires disclosure of remittances and TDS deduction status.
* Form **15CB** is a certificate from a Chartered Accountant regarding TDS applicability.
* If **no TDS is deducted** (since payment is not taxable in India), then in **Form 15CB**, the CA would certify that the remittance is not chargeable to tax in India under Section 195 as per the ruling.
* **Reason for non-deduction** could be stated as:
*"Payment is for purchase of software license which is considered as sale of goods, not royalty or fees for technical services; therefore, no TDS is applicable as per Supreme Court ruling in Tata Consultancy Services and Delhi High Court ruling in Infrasoft Ltd."*
---
### 4. **Additional important notes:**
* The non-resident **does not have a Permanent Establishment (PE) in India**, so no business connection.
* No PAN or Tax Residency Certificate (TRC) — this is important but since no TDS liability, no PAN deduction penalty.
* It’s recommended to keep detailed documentation of the contract and rulings to avoid future tax disputes.
---
### **Summary:**
| Question | Answer |
| ------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- |
| Is TDS applicable on the payment? | **No**, not applicable on purchase of commercial software license (treated as sale of goods). |
| If yes, then at what rate? | Not applicable here. If royalty/fees, 10%/25% or DTAA rate would apply. |
| Reason in Forms 15CA/15CB for no deduction | "Payment for purchase of software license treated as sale of goods as per Supreme Court & Delhi HC rulings, hence no TDS under Section 195." |
---
If you want, I can help draft a formal note or certificate wording for your CA for Form 15CB based on this.
---
---
### Let me break down the points and legal precedents you mentioned:
---
### 1. **Whether TDS is applicable on the payment for Commercial Single License software to non-resident?**
* **Section 195 of Income Tax Act** requires deduction of tax at source on payments made to non-residents, including payments by way of royalty or fees for technical services.
* The Indian tax authorities often treat payments for software licenses as **Royalty** under Section 9(1)(vi) (Income Tax Act), leading to TDS liability.
* However, **Supreme Court ruling in Tata Consultancy Services Ltd.** (TCS) \[245 ITR 401 (SC)] held that payment for purchase of software which is a "goods" transaction is **not royalty**.
* The **Delhi High Court in M/s Infrasoft Ltd.** also held that purchase of software license is not royalty, as software is treated as goods (movable property).
* Therefore, **payment for outright purchase of software license (commercial license)** without any transfer of copyright or right to reproduce or distribute is **not royalty**.
---
### 2. **So, does TDS apply?**
* Since it’s not royalty or fees for technical services, **Section 195 TDS is not applicable** on the purchase price of the commercial software license itself.
* However, if the payment includes any **maintenance fees, technical support or services**, that part may be subject to TDS under **Section 195** as fees for technical services or royalty.
* In your case, it is a **one-time purchase of a commercial single license for USD 4000** — likely no TDS.
---
### 3. **If TDS is not applicable, what to mention in Forms 15CA and 15CB?**
* Form **15CA** requires disclosure of remittances and TDS deduction status.
* Form **15CB** is a certificate from a Chartered Accountant regarding TDS applicability.
* If **no TDS is deducted** (since payment is not taxable in India), then in **Form 15CB**, the CA would certify that the remittance is not chargeable to tax in India under Section 195 as per the ruling.
* **Reason for non-deduction** could be stated as:
*"Payment is for purchase of software license which is considered as sale of goods, not royalty or fees for technical services; therefore, no TDS is applicable as per Supreme Court ruling in Tata Consultancy Services and Delhi High Court ruling in Infrasoft Ltd."*
---
### 4. **Additional important notes:**
* The non-resident **does not have a Permanent Establishment (PE) in India**, so no business connection.
* No PAN or Tax Residency Certificate (TRC) — this is important but since no TDS liability, no PAN deduction penalty.
* It’s recommended to keep detailed documentation of the contract and rulings to avoid future tax disputes.
---
### **Summary:**
| Question | Answer |
| ------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- |
| Is TDS applicable on the payment? | **No**, not applicable on purchase of commercial software license (treated as sale of goods). |
| If yes, then at what rate? | Not applicable here. If royalty/fees, 10%/25% or DTAA rate would apply. |
| Reason in Forms 15CA/15CB for no deduction | "Payment for purchase of software license treated as sale of goods as per Supreme Court & Delhi HC rulings, hence no TDS under Section 195." |
---
If you want, I can help draft a formal note or certificate wording for your CA for Form 15CB based on this.
---
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